Examples of Covered calls

Let’s say you hold stock holding in blue chip companies and you would like to get some income besides the dividends amount from the stocks you own and you don’t want to loose that easy .

We don’t use any complicated strategies here but simple and powerful one’s 

Let say we hold 200 shares of coca -cola with $50 striking price and an expiration date in June 2018

If the share price  is above $50, this would be good deal.by exercising the option the call owner could buy some thing for $50 then buying at 52 or $53 in the open market right !!

If the share price is below $50, no incentive in exercising this option.

Instead of buying share at $50, the call owner could simply buy shares for a lower price in the open market.

On the other side , seller is obligated to sell 100 shares at the at agreed up on price.

If the shares of coca cola trading above $50 we limit our profit on upside.

If the share price below $50: the option likely to expire unexercised and you do not have to sell your shares the reason it is called  covered call  is because you already own the underlying security.  But its risky move ?? Why explain ???

Some of the things to strategies

Buy the calls and sell an equal amount of calls against it.

Sell shorter month calls against it.

Choose two different months to sell his calls.

First look at march 17^th position  122.7 price

Sell March 17^th strike $123 for $1.28

Return based on 100 shares = $128/12271 =1.04%

Lets say 1 sell Jan 18 $125 strike call @5.33

533.00

Advantages of covered calls

·        Some of the benefits of covered calls strategy is More income. Upfront cash flow,  Once agreement is made you receive upfront cash flow, and its yours to keep regardless whether option is exercise or not.  This is considered a conservative strategy which will typically make money unless the stock drops dramatically resulting in a potential loss.

·        By selling options against those securities we can increase cash flow of our portfolio and make that asset more productive but, doesn’t want their stock called away.

·        A covered call is held in order to attempt to take advantage of a neutral or declining stock, and in exchange for receiving the call premium, we forgo some upside in the stock. This strategy is beneficial for every investors because it is not only protects the investors downside risk in a flat to doen lmarket but it also provides diversification benefits, produce superior risk adjusted returns and reduce portfolio volatility

·        Keep in mind that selling covered calls adds no risk other than you may, potentially miss a big move up in the stock upside as you have already promised to sell it for "just" (at predetermined price.)

simple criteria’s to find  Best stocks for options

·        Select stocks with strong balance sheets,

·        stocks that has increased dividends pay outs atleast for 5 years

·        Blue chips stocks are my best picks.

Some of my Top resources to find such stocks

·        Morning star research ( pick that Has three to 4 star ratings)

·        Value line research

·        Wall street journal news paper

·        Investor’s business daily

·        Kiplinger’s personal finance