Covered Calls for Beginners Explained - Proven Trading Strategies
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- เผยแพร่เมื่อ 20 ก.ค. 2020
- Covered Calls for Beginners Explained - Step by Step
To get the transcript, go to: www.rockwelltrading.com/coffe...
The Covered Call Strategy is one of the first strategies that new traders start trading. Traders might use a Covered Calls on stocks that they have in their portfolio for longer periods of time.
For the specific example that we’re going to cover today, we’ll take a look at JP Morgan (JPM). If you were holding JPM stock in your portfolio before the pandemic, chances are that you are underwater.
For the purpose of full transparency, I do not own or hold any JPM stocks. I typically only hold stocks between 5 and 25 days.
If you’d like to learn more about my specific trading strategy, check it out here: • How To Pick Stocks To ...
And if you would like to learn more about options, then check out this playlist here on TH-cam:
Options 101 Course: www.rockwelltrading.com/free/...
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If you would like to learn more about options, then check out this playlist here on TH-cam:
Options 101 Course: www.rockwelltrading.com/free/options-101-course/
Your video instructions are so clear, simple, and easy to understand. Thank you so much for providing clear visuals and simple math to show us the different scenarios!
You are welcome! I am glad that this helps! :)
Thanks Marcus for this explanation ! Now I get it !
Markus you’re the best options teacher on TH-cam. Other videos don’t make sense to me but yours are crystal clear. Thank you!
😊 You are welcome! I am glad that this helps!
Great video Markus !! Very clearly explained !!
Awesome! Thank you for watching! :)
Thanks so much for this excellent video! 🙏from 🇨🇦
Hi Cabbage Rose, thanks for watching. And thanks for your feedback. Much appreciated. "See you" in the next video 👍
thank you so much for this brilliant explanation!
😊 You are welcome! I am glad that this helps!
Woah, this definitely helped me understand covered call so easily!! Appreciate the content
Awesome! I am glad that this helps. Please watch my live session on August 3 at 11am EST! ;)
Great explanation my guy!! Thank you thank you!
😊 You are welcome! I am glad that this helps!
Thank you for this cheat code!!
😊 You are welcome! I am glad that this helps!
you’re a legend!!
Thank you for your support, HurDur! :)
Thank you for the excellent video. You are a very good teacher 👍
Thank you so much! ;) I am glad that you like it.
@@rockwelltradingservices yup - I am an expert on covered calls now -LOL
That is awesome! ;)
Hi Markus, just signed in for a free trial on options. I'll check it out. One question, what if the stock trades above the strike price on day 2 but went back down below 107 before contract expires, what happens? Does the contract get executed when stock price crosses 107 automatically at any given time before expiration?
Hey Markus. so if I have a long term shares in my portfolio and I want to use the covered call strategy, I need to always sell another call when the expiration date of the previous one is done?
thank you, kind sir!
😊 You are welcome! I am glad that this helps!
Do you ever pick strike prices close to what you paid for the stock because the premium is so much greater than when you try to pick a strike where the stock won't be called away? I was thinking it might sometimes be worth it to even pick a strike 50 cents below the cost of the stock if the premium is high enough and the expiration is very short. I would appreciate your thoughts on this scenario.
Marcus, the problem with a covered call for the stocks you own is that you cannot place a sell stop order or trail stop order unless you have the approval to that level which will be unlikely for small accounts. So how do you go about executing some kind of a stop order to sell your long position?
Markus, I have an obligation on the 23rd... sorry to miss it.
Hi, a quick question:
Can I sell naked calls (100 shares of stock "A") at first, then buy back 100 shares of stock "A" before the expiry date to make it back into Covered Calls? Based on the assumption that it's OTM at that point of time but i felt bullish that the call might go ITM. Not sure if it makes sense but is kinda like insurance.
You don't need to buy back the shares. You just need to roll the covered call to the next week.
What happens if my stocks hit my stop loss and I cut my losses while I still have the option on? I had a trade where I risked 100 and it hit my 100 so I got out but I still have a covered call on
Sell is 107 and stock went up to 116? How does one still profit when the stock goes past the strike?
One other question: You did not discuss the Strike price + the Premium paid? Say you sell a $55 call for $1, if the stock finished at $54.75 , the buyer of the call would not exercise would they? Aren't they still losing money if they exercised? Since they paid $100 for the Call? The stock has to go above $56 for the person to want to exercise the call?
IBKR platform i have but i guess all platform the same. Is the strike prices are fixed by the market makers? Any way to set up my own strike price if i want to sell a call option againts my owned 100 shares?
hey, but If we buy back the stock after assign to give it to the buyer when it cross the limit , than how we can buy the stock next day bcos we cant buy stock within 30 days
after selling the stock , and if we buy it will cost more than its buying price bcos the broker will add some interest on our price , suppose we buy stock back on next day with price of 110
than broker will put our purchase price as 110 + some interest and it would cost around 120 or more etc. is not true?
If buying right now why not sell just OTM (out of the money) call? That would be a strike just slightly higher than your purchase price. If you get assigned you still get more for the stock than you paid for it + the CC would be a lot more money if just OTM. Being assigned not a factor unless you do not want to be assigned and that might be if you currently own the stock and you initially paid more for this stock than the strike. BTW many brokers will let you do a "buy/write" meaning you can buy the stock and sell (write) the call option at the same time.
Please send me the option 101 course. Your video is absolute easy to understand. Thank you 💗
Hi! You may check it out here www.rockwelltrading.com/free/30-42-options-101-fb/
How would you figure in your income taxes into this. Do you still owe if you lose money on these options ?
Hi Markus, in the video@5:53, the premium was 0.54 (Bid) & 0.55 (Ask), as you are selling, should be premium be $54 ?
Markus thank you for the clear explanation. However, while selling a Covered Call the Option check list box says "Loss can be Infinite," while profit is capped of at $68 for a stock. So please explain that part of the Covered Call.
Isn't it risky if the stock falls (plunges) in price?
Also it's not good to do a Covered Call closer to Earnings correct? As stock may climb up or drop down drastically, due to Earnings report announcements. Any stock can be the most volatile during this period. Please answer my questions. Thank you.
That's correct: When the stock drops, you can lose money. But when you write a covered call, some of the loss is offset by the premium that you receive. That's why covered calls are so popular. 👍
Markus, very well said. So clear, and simple to understand, signed up for your options course, and interested in your book, but I am currently living in South America, so shipping is out of the question for me. I'd gladly pay $4.95 to receive a pdf / e-book version, or convert it into an audio book. Thanks.
Ah, nevermind. I see its available on Kindle thru Amazon. Getting it now.
I am glad that you found it! 😊
Hey question about cover call. What would happen if you buy back your cover call early. Do you own the call option at that price or does it just close out the cover call and keep the premium??
Hi Charlie, YES, you can buy back the option and you would keep the difference. Example: You're selling an option for $1.00 and you are buying it back for $0.10. So you would keep $0.90 in premium.
Does this help?
Markus, the $55 premium is a fixed value you receive right away? I thought a covered call premium fluctuates based on the current price of the stock in relation to the strike price.
It's fixed because you're selling the call, so you already receive the $55 at the start of the contract.
Who‘s here from Jon Skywalker? 🤟🏼🤟🏼🤟🏼
yup
My dawg
Thank you for your support, forbes_upnext! :)
Nice Sir
😎Awesome! Thank you for watching! :)
Hi love your video. I have a question, what will happen if I sell earlier those shares that I committed to the covered call? Is that possible?
If you sell the shares before you sell the call, then it is no longer a "covered call". It would be a "naked call" since you don't own the shares any more, and that's getting more risky.
@@rockwelltradingservices Oh thank you for your reply! That is good to know.
Awesome! :)
I watch your videos. They are great. I have a question that I can't find answers for. Can I ask you?
Hi Garrett, sure! How can I help?
What would be recommended platform/app where you can practise Covered call options trade on a Demo account before we go with the real money.
Thanks
We're recommending using the Tradier trading platform on their website to our viewers. It is a super simple platform to use and can do everything you need to trade The Wheel. They also offer paper trading so you can practice trading before you go live and trade with real money. Follow this link and when you sign up for an account, be sure to use the promo code "Rockwell10" for special rates. www.rockwelltrading.com/broker
Markus, I am still a bit confused on the Buy to close part? If I do not want to just let the calls expire and want to Buy to Close before the expiration because I want to employ the strategy of taking 90% and being happy. Do I put a Limit Ask price Lower or Higher than what I sold the Covered Call for??? Example: I SOLD a covered call for $1.12, the price of the stock has fallen so the call is selling for $1.34. So if I want to buy to close before the expiration, do I Buy to Close with a price of $1.34 (or maybe $1.30) or because it is covered call, do I put a price below what I paid (say $1.03)???
Hi Joe, if you SOLD a call, you want to buy it back CHEAPER than you sold it.
In your example, if you sold a call for $1.12, then you can buy it back for $0.11. In this case, you keep 90% of the premium.
You can use a LIMIT order and leave it as a GTC order in the markets. This way you get filled whenever the option is trading at your price.
Does my cost bases, my avg play into the strike price I choose when placing a covered call?
YES! I wouldn't sell a call below the cost basis or break even.
@@rockwelltradingservices thanks
Hi Markus - I would love some clarification here around the 7:41 mark.
You say that you’d make $2000 if the stock hits $116. However, in this example, you sold the covered call at a strike price of $107.
Wouldn’t this mean that you are obligated to sell your 100 shares at $107 and you therefore only make $11 per share + your $55 premium?
@markus
Yes, that was a mistake. I'm correcting it at 9:57 min.
Take a look.
Is this making more sense now?
I sold a call for strike price of $107. If stock goes to $116, how I am making $55? Don't I have to buy to close or give my 100 shares to buyer of the call for $107?
Quick question y’all what apps or websites do y’all use for stocks apart from Robinhood?
Fidelity or Tastyworks
Webull
Hi, I'm really enjoying this video, but I have a few questions. At minute 10:30 when you talk about buying and selling... if you're buying and selling so often, aren't you dealing with loads and fees? Doesn't that eat away at your profit? Also, when selecting a price for my call, what's to stop me from picking a future value for my stock that's absurdly high. So, instead of saying "I'll sell at $107," what's to stop me from saying, "I don't actually want to risk having to sell my shares, so I'll set my call price at $10,007," because I know it won't reach that in 7 days? Does that make a difference to my profit? Is there some sort of market limit on my call price?
Thank you!
There are no fees for most brokers now after robind hood came into the game.
There is no strike price call for $10,007. Maybe $200. But the further you go out, the less you'll profit.
For example, (Made up numbers but same concept)
Strike $107 = $1
Strike $108 = 90 cents
strike $109 = 75 cents
strike $110 = 60 cents
Strike $10,007 =.00000000000000001 cents lol
@ hannah stern
When you buy or sell options you write a contract. So what the other commenter said, that number of $10,007 wouldn't be available as an option on the contract, BUT even if it were available, your contract has to make enough sense for somebody on the other end to accept it. So if you wrote it at $10,007, it would just sit there and nothing would happen.
Didn't quite understand that. If you lose $900 if the price goes down, what happens? Are you forced to sell the shares? Or can you keep the shares and continue to to the next month?
If the price is below the strike price at expiration when selling covered calls, you keep the shares and keep the premium. Then you keep selling covered calls against these shares to collect more premium until the price is above the strike price at expiration. When the price is above the strike price at expiration is when you are called away.
The seller is either neutral or bearish and does not want the share price to go above the strike price. If the share price stays below the strike price the seller gets to keep his premium.... this video confused me as it conflicts with every other options video I have watched
Thanks for your video.
When selling deep in the money options and how we benefit with selling that, as the selling strike is way below the current share price. I know who ever selling deep in the money options marking good premiums but how the game is work for them.
You are welcome! I am glad that this helps! :)
How do I sign up for daily alert for option
Hi Shama, here is the link www.rockwelltrading.com/products/rockwell-power-income/
it all clicked when you rolled it up for a yearly % !!
😀👍
Pls how do uou avoid the 37% short term tax
I made a video on this: th-cam.com/video/yaTgAp9EZAE/w-d-xo.html
Does this help?
52 x 5 x .08 = 21%
Not 365 since market only moved on week days
I'm not a day trader. I'm holding positions over the weekend, and most traders who are trading covered calls are holding the position over the weekend, too. Time decay is working 24/7, so it's valid to include the weekends. Therefore, I believe my calculation is correct. Making sense? 👍
Making $55 doesn't sound as important as losing $945. I guess you're supposed to be right all the time so that won't happen. I'm not a trader. Happy to buy and hold stocks and occasionally speculate in a small way, knowing that the rewards are less. Since 2015 I speculated in gold miners, iron ore, railroads etc and did pretty good. I had more than 7 days or even 70 days to wait for a rally and scale out. Four months ago I bought $10K of XOP when it was down close to 50% YTD. Then a few days later the OPEC price war knocked it down another 40% from there. After the 4 way reverse split and a nice rebound I sold half at a 30% profit and hold the rest, so far a little better than breaking even on it. Imagine a short term covered call in that situation if the timing is wrong.
At least its not 0 or - $945 , its just a loss in profit from $2000. Most of the time advantage is with whoever sells the option on weekly's.
is that a free meal?
Vid starts at 5:56
Thank you for watching! 😊
I intended to take your course, Marcus, but saw that there are 13 classes, and now for the superstition against 13, I am not taking your course.
Ok, no worries. 😉 I do not believe in superstition but in some culture 13 is a symbol of new beginning. It really does not matter.
I have never seen free money. CCW is clever but *not free*.
This video has too many assumptions that the viewer understands each step or the reasons for them
Correct. And if the viewer needs more help, I have an options 101 playlist: th-cam.com/video/EyfuSwO42lI/w-d-xo.html 👍
Omg, for beginners or for intellectually "different" ?
This is a beginners guide. ;)
Not especially helpful, title should reflect that the video is aimed at people that already understand options.
Hi Isaac, this is a part of a series. You can watch it in the playlist th-cam.com/video/EyfuSwO42lI/w-d-xo.html
This makes zero sense to me. Smh