Posts Tagged ‘option’

Using In-The-Money Covered Calls For Portfolio Protection

Thursday, January 5th, 2012

When you invest in ITM or in-the-money covered calls, it can be a safe way to trade. You have the chance to make profits on stocks, no matter which way they go. Here are some ways that ITM covered calls can generate profits for you.

Whenever you sell or write a covered call option, you are the owner of the commodity, stock, or security. This option can be either OTM or ITM. If it is ITM or in-the-money, you set a strike price that is lower that the current stock value. The opposite is true for the OTM or out-of-the-money option.

At first, it may not seem profitable to write an ITM option. Yet, when you take a more detailed look, you will see how it works. For example, you but 100 shares of Widgets Inc for $15 a share. You might write an option contract with $14 as the strike price. Perhaps you are expecting to get as much as $2 premium for each share.

If someone buys your $14 a share option, they are hoping that the stock continues to rise. It is a good investment for them because the option is already in the money and can be exercised at any time. However, if the option is exercised at $14 when the value is $15, there is no profit to be made, once you consider the premium.

If your stock raises considerably in value, you can bet that you will have to sell it, even if it skyrockets. When you sell the stock, you lose one dollar per share or $100. However, you have made $200 from the sale of the option. After transaction fees you still may be ahead.

If the stock drops or stays the same, the option will expire. You keep the stock and you also keep the $200 premium. You can sell options on the same stock next month, if it does not drop too far. In fact, if your stock drops, you may try to sell options with a higher strike price, but it may be difficult in some cases.

If you are looking into stock or commodity options, you may wish to think about covered calls. In fact, in the money covered calls can be an effective and safe way to trade on the market. Maybe you have some stocks that you think will not move much in the next month. An ITM option can make profit for you whether the stock raises or lowers in value.

To find out more about covered calls, visit Born To Sell. If you like covered call investing you are welcome to check out Born To Sell.

Increase Monthly Income By Writing Covered Calls

Thursday, January 5th, 2012

If you are looking for a conservative investment opportunity, you might wish to check into writing covered calls. To write a call option means to sell it, but you cover the call option by owning the stock or securities mentioned in the option contract. In many cases, these kinds of options are bought and sold and the traders do not own the stock, they only own the options. When you own the stock to the options you have more chances to turn a profit. Here is additional information on writing covered calls strategy.

When call options are sold, the writer is paid a premium on each share of the contract. This means that a 100 share contract will earn $300 at three dollars a share. This money is yours to keep no matter what occurs. You are also the one who sets the amount for the strike price of the stock or commodities.

When you sell your covered call options you receive a premium for each share. For example, a contract with one hundred shares may give you two dollars premium per share for the option. No matter what happens, you receive two hundred dollars. You also set a strike price that your stock can be purchased at.

Maybe you want to sell an option contract for 100 shares of stock and a strike price of $60. You might have paid $45 per share for the stock, originally. If the price goes all the way up to $70 a share, your option holder will buy your stock at $60 a share. However, you make money from the premiums and also from selling your stock.

Suppose you sell a contract for one hundred shares of stock with a strike price of fifty dollars. Your original purchase price is forty dollars per share. The stock may soar to sixty dollars per share. When this happens you are going to lose your stock as the owner of the option will be able to make money. However, you are still making money on your stock sale and your option premium.

Writing covered calls also works well for the trader who is in the market to buy stocks. Instead of buying and selling stocks for profit, you can sell options on stock that you buy. This puts more of the risk factor under your control, as you set the terms.

If you study it, you will see that writing covered calls for trading is a relatively safe and conservative investment. You can make money from stock or investments that you own without having to sell them. You also make profit through the sale of option contracts.

Born To Sell’s site is exclusively about covered calls. Use this link to go to Born To Sell’s website on covered call options.

High Yield Covered Calls Are Good For Your Portfolio

Sunday, January 1st, 2012

Many traders who are conservative use a strategy called “covered calls”. One type that increases the return on investments is high yield covered calls (HYCC). However, this strategy can be confusing and requires some research.

For those who are new to the stock market, it is important to remember that stockholders have rights. For instance, they can buy and sell stocks at any time for the price currently set by the stock market. When using a HYCC strategy, this right to make transactions is sold to another person for a predetermined cash price.

This sale price is called the strike price. The purchaser is allowed to buy your shares any time before this agreement expires. The call option is actually a contract that sets the strike price and allows the purchaser to buy underlying stock at the price the stockholder sets. In cases where the seller owns the underlying shares outright, this exchange is considered “covered”.

HYCCs can result in a handsome profit, especially for investors knowledgeable about this process. With a volatile market, the premiums on call options are much higher and can yield as much as a 5% return. However, it is important to evaluate this type of transaction carefully as it is easy to take a loss as well.

There are only three directions an investment can go. It can move up, remain stable, or decline. All of these influence potential profits. By adding the HYCC, the outcome can turn in an investor’s favor. This is because when stock is offered through this option at a future date, with a preset price, there can be at least some guarantee of a good return on the investment.

A premium is charged when using a HYCC option that is paid by the buyer. The transaction will result in the strike price plus the premium. Although less than the maximum may be recouped if stock prices rise significantly, if they decline or remain stable the seller is ensured they will get more than they paid for each share. If the buyer decides not to close by the expiration date, however, the seller still collects the premium.

For those new to this concept, high yield covered calls may seem confusing initially. It is important, therefore, to use sites that include tutorials. The visual aids and demonstrations provided help with understanding how this strategy works.

To find out more about covered call strategies, go to Born To Sell. Know what’s better than bond interest? Covered call investing at Born To Sell.

A Covered Call Calculator To Increase Your Returns

Tuesday, December 20th, 2011

A covered call calculator (CCC) is designed to help conservative investors determine when they should roll their position. There are many things that must be considered prior to the time a roll is made. By utilizing this tool, better decisions can be made in less time.

Optimizing potential returns in a flexible market can be difficult. Deciding when to roll requires many considerations. Things such as time premium remaining, earning release dates, bid/ask spreads, and ex-dividend dates can all impact potential returns. By utilizing a tool such as CCC, the information needed to make the most beneficial decisions is at hand.

Although there are many options on the market today, the best CCC should include all variables that impact potential returns. When using a calculator that includes automatic updates in pricing, ex-dividend dates, and integrated earnings release dates, a significant amount of time can be saved. Not only will it keep investors out of trouble by ensuring they are kept aware of important dates, but will also optimize the time invested.

The CCC takes the option premium return and potential capital gain and determines a sum. This gives a total potential return that is then divided by current stock prices. When the market price is subtracted from the strike price, the potential capital gain can be determined. The amount is multiplied by 365 and divided again until the option expires. This makes it easy to tell whether the move will be profitable.

For years these calculations have been done by hand and have required investing a considerable amount of time. The CCC is designed to accomplish the same goal within minutes. It should be remembered that it is a tool that is not designed to give advice or quotes. However, it does allow a quick comparison of options and potential outcomes.

One of the key features that should be included is a marketing tutorial. New tools such as this, are most useful when individuals learn how to utilize them to their maximum potential. By learning how to work the system well, it can increase returns. This includes while considering rolling trades which requires investors be well-versed on the variables that impact outcomes.

The covered call calculator is designed to help investors manage their assets. There are many times when it is wise to make a move and determining when can be less confusing with this tool. By researching alternatives, the right CCC can be found.

To check out Born To Sell’s website on covered call investing, click here. In the money covered calls are popular with income-oriented investors because of the extra downside protection they provide. See https://www.borntosell.com/covered-call-blog/in-the-money-covered-calls/