Covered Calls are call options secured with your existing stocks/ETFs. You are writing or selling a CALL option, and the buyer can call away your stocks at a specific price, strike price. To cover your position against massive losses, you use your existing stocks as collateral for the option contract.
Selling Covered Calls (CCs) is a step in the Wheel Strategy.
Can I Lose My Stocks When Selling Covered Calls?
Yes, you are using existing stocks/ETFs you own as collateral for selling a CALL option. If a buyer chooses to exercise their CALL option against you, you will be forced to sell your stocks at the strike price—calling away your stocks.
Can I Lose My Stocks If The Covered Call Is Out Of The Money?
Out of the money (OTM) with CALL options occurs when the current price of the security, in this case, stocks or ETFs, is lower than the Strike Price of the CALL Option.
Knowing this, the CALL owner/buyer has the right to exercise their ability to call away your stocks at the CALL option strike price. Now, if the current stock is trading lower than the strike price, what options will the CALL owner use to call away your stocks at the higher strike price?
It would be financially prudent if the CALL did not do this, but if for some reason it occurs and you want to remain invested in original stocks, just buy them back at the lower trading price and keep the price difference.
Side note: I wish people would buy my stocks at a higher price than what is currently traded. :p
Benefits Of Selling Covering Call Options?
You can earn extra income and premiums on already existing stocks.
By selling Out Of The Money Covered Calls and CALL Options with strike prices higher than the current trading price, you can collect this premium and only sell those stocks at a price you are willing to sell the stocks/ETFs at.
Covered Call Income Example:
Tesla, TLSA, is NOT a dividend-issuing stock. Some TLSA owners plan to hold their Tesla stock forever, never selling it.
If you buy a non-dividend-generating stock with no plans of ever selling it, what do you get in return? The ability to brag that you own the stock.
Selling covered calls allows you to write call option contracts, use your existing Tesla stocks as collateral, and generate a small premium.
You just turned your love for Tesla stocks into an income stream. Are you eating your cake and having it, too?
Your Covered Call Strategy Ideas?
Do you write covered calls? It’s part of my Wheel Strategy, and I want to know how other people generate extra income by selling Calls. Please leave a comment below.
 Myself with an interesting Bull Sculpture. Notice: No Lambo’s. :/ | Hi I’m Tom, A Blogger And A PIG Farmer. PIG Farmer as in I grow Passive Income Generators(PIG’s). I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks. Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me. My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs. I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments. Fun Fact: In my spare time, I am a Band-Dad! |