select * from covered where status='active'

Covered Call and Put

Most investors think that when they buy shares of a company, the only thing they can do is hold onto them in the hopes of generating a profit.

But in a volatile market environment like today, writing–or selling–covered call options are giving many shareholders the chance to generate even higher returns by “renting out” the shares they own to speculative investors in exchange for monthly income.

Essentially this is an income-generating strategy. As a shares owner, you are entitled to several rights. One of these is the right to sell your shares at any time for the market price. Covered call writing is simply the selling of this right to someone else in exchange for cash paid today. This means that you give the buyer of the option the right to buy your shares before the option expires, and at a predetermined price

Who is it suitable for?

  • Conservative investors
  • Investors seeking extra income
  • Self Managed Super Funds
  • Wealth Accumulators
  • High Net Worth Individuals

A conservative income generating strategy

Covered Calls are generally considered as a conservative income generating strategy because the potential loss is limited. Covered Call writing involves a call option being sold or put option being sold (or 'written') against a holding of the underlying shares or cash.

Writing covered calls gives another party the right to buy the stock at the option sell price. When writing covered calls, the share owner is selling the upside potential of a stock to speculators. Since their focus is on regular Positive Cash Flow Income and not long-term capital gain. By writing covered calls share owner, receive income immediately, premium is credited to account within a day or so; money can reinvest, draw it from account to increase household cash flow…whatever chooses? Since don’t have to worry about paying the premium back can do what so ever want with the money.

Time Decay:

The value of an option contract is based on the value of time. Let’s take a quick look.

Time value is what an option contract is worth based on the amount of time left

before it covered call or covered put expires. The entire premium is based on time value.

In most cases sell covered calls ; that way can hold on to the underlying shares, enjoy dividends, pocket the option premiums as additional income, and gain from appreciation in the underlying value of the Shares. In those cases, buyers pay for the time decay.

When writing Covered calls the share owner must be prepared to do one of the following:

  1. Allow the stock to be sold or bought (assigned or called) at the option sell price at any time before the covered calls or covered puts expire
  2. Let the covered calls or puts expire unexercised (on the last Thursday of the month)

What are the risks in covered call writing?

Although covered call writing is generally considered a fairly conservative option strategy, there are risks. Remember, as a covered call writer you’re wearing two hats: You’re a call seller and you’re also a stockholder.

Downside risk as a stockholder.  If the value of your underlying shares falls significantly, the loss from holding the stock will likely outweigh the gain from the option premium received.

Limited upside as a stockholder.  Your potential gain from owning the stock is limited to the gain you may realize if the share price reaches the sell price of the option. At some point after this occurs, the shares will likely be "called away" and you will sell the shares for the sell price.