Trading in covered calls options is a winner’s game. Considering that 75% of all options held until maturity will expire worthless, it’s much better to sell call options to other people than to buy them. Buying them is more like gambling. Selling them is similar to collecting interests.
1973 was when covered call options was first introduced to the public. Since then many investors have discovered that buying stock and then selling covered call options against that stock, is better. This is especially true if they are in-the-money options. The money options provide a fantastic way to get 12 dividends per year from stocks they love. In the rare case where the stock declines below the strike price, you will end up owning the stock for more than one option cycle and can simply write another call against the same stock for the next cycle.
At any given moment there are over 240,000 covered call possibilities (considering all 5500 options in securities, and then the multitude of strike prices and expiration dates that exist for each one). Using a covered calls calculator to figure out the annual rates of return is a huge time saver. Doing the math by hand with so many combinations is impractical.
A good covered calls calculator will know about important dates like the next ex-dividend date and the next earnings release date. Another great feature is that it will highlight those items next to the return numbers it calculates. Seeing a high return without these items is often confusing. If your calculator doesn’t do this then you will have to go look up each stock in a second pass to try and figure out why the premiums are so abnormally high. Much better to have that kind of functionality built into you covered calls calculator from the start.
There are confusing options strategies around. Some have colorful names like ‘iron condor’ and ‘butterfly spread’. But the most popular and most conservative one is the covered calls strategy. It is employed by all kinds of investors who generate recurring monthly income from its simple mechanics.
All you have to do to utilize the covered calls strategy is own 100 or more shares of stock. For each 100 shares you own you can sell 1 call option against those shares. That will generate income on the day you place the trade. Then, you wait. You may end up losing your stock on expiration day but if you do you will receive the strike price per share in exchange. So it’s not like you didn’t make anything, you just didn’t make as much as you could have if you hadn’t sold the call option in the first place.
Information source: BornToSell Blog