Covered Calls

Covered Calls are generally considered one of the safest investment strategies around today - mainly because the position taken is 'covered' by equity assets in the form of stocks or other securities, rather than another derivative position (in which case it would be called a "spread").

In fact, to quote the Chicago Board Options Exchange (CBOE) ... "Writing covered calls is not only the safest of all option strategies, it is also safer than purchasing and selling stocks only".

Because this strategy involves the purchase of an underlying asset, even if the price action goes against you, you only lose when you sell it. You can choose to hold a stock for a long time until things get better, whereas positions involving only option contracts will eventually expire. Other derivative positions such as futures or CFDs will only increase your losses by the leveraged amount and you may be subject to a margin call. Owning the underlying security outright usually involves less risk.

The simple idea behind this strategy is that you sell (or 'write') call options against the stock that you already own. You would normally do so for a strike price above the price you bought them for. This way, if the calls are exercised, you will be forced to sell the stock for at least some gain. You will need to own at least enough of the stock to "cover" the number of shares involved in the option contract - usually 100 shares in the USA and other countries like Australia.

If you buy shares and immediately sell call options over them all in the same transaction, this is called a "buy-write" trade.

The risk involved from selling option contracts is 'covered' by the shares that you can deliver to the market, if the options are exercised. If you didn't own the underlying shares and wrote call options, this is called "selling naked" and because you have sold someone the right to buy your shares at an agreed price, your potential losses would only be limited by the difference between the option strike price and zero, multiplied by the number of shares in the contract/s, less the options premium received.

Welcome to the Covered Calls Section of our Site

This is a very popular area of options trading and if you have sufficient funds to invest, the strategies we outline in the pages listed below should arm you with sufficient knowledge to trade covered calls quite successfully. So please take a look around and enjoy the journey.

Covered Calls Table of Contents

What is a Covered Call

Covered Call Strategy
- for the stock owner who wants more than dividends

Covered Call Writing Strategy
- for Compounding Monthly Income

Covered Calls and Naked Puts

Writing Covered Calls

Covered Call Investing

Covered Call Writing
- A Cheaper Safer Way to Do It

Selling Covered Calls - in a Bear Market

Covered Call Steps
- Your Own Action Guide

Covered Call Screener

Covered Call Examples

Covered Call Strategies
- For All Market Conditions

Autotrade Covered Calls
- if you prefer to let professionals take care of everything

Leaps Covered Calls
- an appealing alternative to the traditional covered call

Write Covered Calls
- a more aggressive strategy to the traditional covered call

Understanding Covered Calls
- a simple overview for beginners

Trading Covered Calls
During a Financial Meltdown - How to do it Safely

Covered Call Write
How and when to do a Covered Call Write

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