Covered calls make a great deal of sense for those who are content
holding stock at the stock's current price level and who are willing to
sell it at a slightly higher price level, foregoing any profits above
that point. In other words, if you are not looking for capital
appreciation in your stocks the covered call strategy can be used very
effectively to enhance returns.
The strategy becomes very effective when it is used as part of a monthly
campaign. Each month calls are sold against the shares of stock that
you hold in the portfolio. Each month you bring in premium. As the
stocks rise in value shares of stock will be sold off. You are then
free to replace those shares with something else.
The biggest concern for the covered call trader is a pronounced
sell-off. If you are interested in trading covered calls I would also
suggest spending some time learning about selling cash secured puts and
the collar strategy. Selling cash secured puts is a method by which you
can continue bringing in monthly option premium without buying a stock
at an extended price level. The collar strategy allows you to protect
against a sell-off in the stock.
Just bear in mind that options are not something you want to "jump
into." They are complex financial instruments and do require some time
and effort if you hope to fully understand their operation and how best
to apply them to your circumstance.
Christopher Smith
TheOptionClub.
--- In OptionClub@yahoogro
>
> I am new to options but not the market and have managed my IRA for
several years. I buy dividend stocks to create "cash flow" to use in
retirement and when the stock apreciation lowers the dividend below my
comfort level, I will sell and buy something else.
> Why not sell a covered call at my sell point if I already know I will
sell at that price but am happy to hold if it does not. It generates a
little income while waiting. Am I missing something?
> Thanks
>
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