Selling a Covered Call Option

By Jason Fittler

Selling a Call option is an income strategy.

It suits investors who have large holding of blue chip stocks. If you hold over 1000 shares in a large blue chip company and you are looking for more income this strategy is for you.

If you do not hold the shares then this would be a high risk strategy as such I would not recommend it.

Selling a Call option means that you give someone the right to buy your shares at a set price. For this right you receive a payment.

Example. You hold 1000 shares in XYZ, the share price is $10 and you do not expect to see the price move up from here in the short term (30 Days). To earn a little more income you sell a $10 call over XYZ for this you receive $0.50 per share or $1000.

Your risk is that the price of XYZ moves higher, if this is the case you lose any up side in the share price above $10.50. The $10.50 is made up of the $0.50 you received for the call and the $10 you would receive on being exercised on the Call and having to sell your shares.

The up side is if the share price stays below $10 you will keep the $0.50 you received for the sell Call - giving you a return of 5% for the month. This process can then be repeated as often as possible throughout the year.

Through selling Calls you are able to boost the overall return for your portfolio and make your shares work harder for you.

Keep in mind when selling Calls you must have the right conditions to place the trade, be patient and pick the timing. It is best to have a professional do this for you.

If you are interested in this sort of opportunity give us a call 07 4771 4577.