Understanding The Covered Call Return

Covered call return is simply the maximum amount of money you can earn by writing a call option on your stocks. Let’s say for example that you own 100 stock shares, at the price of $40 each, and you write a covered call, at a premium of $2 and a strike price of $45. If the stock price reaches $45, you will have to sell your stocks, earning $5 from each share and another $2 for writing the call, meaning a profit of $7 on each share.

So, if you initially paid $4000 for the stocks, now you will make a profit of $700 and will earn a total of $4700, which can also be considered the covered call return. The good thing is that, if the price doesn’t reach $45, you will keep your stocks and also earn the $2 for selling the call option. Because of this, writing covered calls is perhaps the most preferred investment strategy used by investors.

How To Look For Covered Calls?

Before you can experience covered call return, you must first know how to look for covered calls. Writing covered calls is a strategy highly used by investors world-wide, because it gives them the opportunity to make a much bigger profit than just keeping the stocks and hoping that their value will increase.

Besides that, it also offers them a good loss protection if the stock price goes down. Because of this many investors buy stocks just so they can write covered calls on them. For example, if you own stocks in a company that offers an annual dividend yield of 3%, by writing covered calls you can earn as much as 20% annual profit.

Of course, this situation doesn’t apply to all stocks, but only to the very best. You have to find the most lucrative opportunities from thousands of options in stock market. It may seem impossible to do this, but thankfully there are tools available that can do the task for you in a jiffy. You have to look for them in reliable and trustworthy websites that has the your interest on top of mind.

Another great tip for those writing covered calls is to make sure that they possess a diversified portfolio to write covered calls on. This will provide you some degree of insulation from losses, as you won’t have all your eggs in one basket. Even if the stocks in a certain sector go down, you’ll still have others to fall back on.

Guest Post provided by: BornToSell

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