What Are The Best Covered Call Strategies?

Aug 1 • General • 382 Views • Comments Off on What Are The Best Covered Call Strategies?

As the cost of living all over the world keeps increasing at a steady pace, it might be very worthwhile to be well-versed when it comes to covered calls. This term might not be very familiar to those who are not acquainted with the finer points of share trading, or options trading to be specific. Covered calls, also known as buy/writes, are basically the process of selling a call on a share that you already own. The profit that you might  happen to gain is limited, but there is also no hedge to deal with if the price of the share drops even more. This means you will still own the same stock, albeit at a cheaper price now. Best of all, you receive your premium right up front after selling the best covered call that you happen to have chosen. There are many strategies when it comes to buying covered calls over your stock, and these could well stand to help you make more profit out of your existing stock. Long-term and short-term strategies both exist for the purchase of the best covered call for your stocks. All the strategies that can be used have their own risks and benefits, but one fact worth noting is that covered calls are certainly a good form of investing.

For investors who are holding on to shares for some time and intending to do so for an extended period of time as well, purchasing covered calls over these shares is certainly a good long-term strategy. This is especially true for more stable types of stocks which appear to be on the rise, like Apple (AAPL) or Google (GOOG) shares. There are many reasons why this is a good long term covered call strategy. For one, the idea that you are holding on to these shares for the long term is a strongly positive factor which influences your decisions to purchase covered call strategies. Therefore, you can actually make profit off the fluctuation of your shares, hence allowing you to take advantage of the fact that you are holding on to the shares anyway. Additionally, there is no hedge that might lead you to lose additional money from these long-term shares, making it a profit-only equation with no risk as far as the covered calls are concerned. Last but not least, this strategy of covered calls enables you to profit more, especially if you are looking at a neutral-to-bullish market with no extreme fluctuation in either direction. For all these reasons, buying covered call on stocks which you plan to hold on to is a good idea to supplement your investment income with no risks.

Investors who are looking at short term profits and those with the intention of making a quick buck while investing should consider other strategies when it comes to covered calls. For instance, one good strategy which can be used in purchasing covered calls is to aim at obtaining safe and guaranteed up-front premiums for more volatile shares. An example of this would be Zynga (ZNGA) and Velti (VELT) . Since these stocks have the likelihood of either crashing or climbing fast, the premiums can help to dampen the losses in the case of stocks dropping in price. Therefore, the full impact of losing money on these stocks can be reduced and will not be felt as hard. Of course, this is the worst case scenario, and it must be noted that if the investor experiences gains in the prices of the shares, he stands to gain premium on top of his winnings. It is also suitable for short term players who are interested in seeking small rises of shares before selling them off, again with the fact that the premiums help supplement their income anyway.

All in all, various strategies exist in buying covered calls for your stock options. These strategies should be suited to what type of investor you are, as well as the budget you have and the condition of the stock market. With the right covered calls being made, there is no doubt that you are able to garner some extra income with minimal risk, and this profit can certainly play into your hands at the end of the day. After all, the best covered call is a good way to make limited profit with minimal risk, especially for experienced investors who know how to make balances.

This is a guest post by Brian Scott.  Occasional guest poster on advertising.  Brian currently represents Compound Stock Earnings, a great resource for find out more about covered calls.

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