• Options Course
  • High Level Options
  • Privacy Policy
  • Terms of Use
  • Cookies
  • Financial Disclosure
How to Trade Options » COVERED CALLS » Covered Call Picks

Covered Call Picks

The Best Approach For Your Covered Call Picks

Deciding how to select your covered call picks for the month should not be a difficult process. All you need to do, is bear in mind that with any covered call trade, there are three possible outcomes. Each of these vary in profitablity, so your best notion is to select the strategy that is most likely to make you the most money.

For anyone coming to this page without a background in Covered Calls, it involves purchasing the underlying shares and then selling call option contracts equal to the number of shares purchased. The risk in selling your short call positions is ‘covered’ by the profit that will be made from the underlying shares.

Assuming you’re selling out-of-the-money calls, here are the potential outcomes:

1. The underlying price action has risen and breached your short option strike price – the best scenario.

2. The underlying price action remains somewhere between your share purchase price and your sold (short) option strike price – next best scenario.

3. The underlying price action falls below your original share purchase price – time to consider adjustments.

The reason why option (1) above is the most profitable, is because this is where you not only receive the gain from the appreciation of your share price, but you get to keep the premium received from selling the call options as well. Even if the price of the underlying security goes ‘through the roof’ you may be forced to sell the shares at the call strike price if exercised, but since you already own them, you make the maximum gain for the nature of the trade. The only downside here is that your profit is limited to the difference between the share purchase price and the call option strike price, plus the premium from selling the options.

The second scenario will make you ‘some’ profit, in that your sold calls will expire worthless so you get to keep the premium. Then you need to make the decision whether to keep the shares (which will also be in profit) and write more calls for the next month out.

The third scenario above, means your shares will be losing money, but this will be somewhat offset by the call option premium received. You can usually buy back your out-of-the-money (OTM) calls rather cheaply and sell more at-the-money calls as you near expiration date. You can even consider selling in-the-money calls, providing the premium you receive is greater than the difference between the original purchase price and the ITM strike price. This last option will lower your risk but you will receive less overall income in return.

Having established the above potential outcomes, your best method for choosing your covered call picks will be based on scenario 1.

Covered Call Picks – How to Stack the Odds in Your Favour?

Naturally, you’ll be looking for a security that is in a steady uptrend. Various methods have been suggested for locating these covered call picks, including moving average crossovers in combination with trendlines, subscribing to information services which monitor and rate the fundamentals of stocks, or joining popular option trading clubs such as Market Club and accessing their advanced market scanning and ‘trade triangle’ technology. In fact, Market Club offer a test drive of their complete service for a mere $8.95 for the first 30 days. After that you can quit any time you like. I’ve found their service and prices to be one of the best.

There are some services that will email you suggested covered call picks, but in my opinion, you’re far better off by taking responsibility for your own decisions rather than relying on someone else’s. There’s a certain psychological advantage in having a sense of ownership for your own trading decisions. When you’re just receiving instructions, I know from personal experience that it’s much easier to go into denial when the trade is not working out the way you expected, because you can just make it someone else’s problem.

There are other covered call strategies you can adopt which are not so aggressive and more suited to bear markets, but finding steadily rising securities and writing near month OTM calls will always provide your best covered call picks.

You Might Also Like

  • The Stochastic IndicatorThe Stochastic Indicator
  • Anyoption ReviewAnyoption Review
  • Call Calendar Spread ExampleCall Calendar Spread Example
  • QQQ Option TradingQQQ Option Trading

Filed Under: COVERED CALLS Tagged With: covered call selections, finding covered calls

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Search for Anything Here

Main Pages

  • Home
  • Options Basics
  • Covered Calls Options
  • Advanced Strategies
  • Option Spread Trading
  • Stock Option Trading
  • Index Options
  • Stock Chart Analysis
  • Forex Options Trading
  • Options Trading Software
  • Option Trading Systems
  • Commodity Futures Options
  • Options Broker Reviews
  • Glossary of Options Trading Terms
  • Financial Disclosure

Latest Articles

  • Investing Basics – Diversify Your Portfolio to Make Money
  • Want Trading Success? Avoid These Four Trading Mistakes
  • Technical Analysis of Stock Charts
  • The Calendar Straddle Option Strategy
  • Candlestick Chart Patterns Explained
  • Bottom Fishing Stocks Using Inflated Option Prices
  • Bottom Fishing Stock Strategy – Example
  • Comparing the Bear Call Calendar Spread with the Traditional Bear Call Spread
  • Is Binary Options a Scam if you Have a System?
  • Call Calendar Spread Example
  • Options Trading Education and Training
  • The Call Calendar Spread Explained
  • The Three Legged Box Options Trade
  • Near Riskless Trading Strategies
  • Is Binary Options a Scam? Read This and Decide
  • Gold ETF Investing – 10 Facts You Should Know
  • How to Profit Like a Pro Trader
  • Earnings Report Definition
  • Jamie McIntyre and the 21st Century Academy
  • You Can! Be a Successful Options Trader


options trading pro system

Save

Home   |   Site Map   |   Privacy Policy   |   Terms of Use   |   Amazon Affiliate   
Copyright © 2002- Option Trading Fortune. ALL RIGHTS RESERVED.

Page copy protected against web site content infringement by Copyscape


DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to Buy/Sell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.