How To Sell Covered Calls (Easy Monthly Income)
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- Опубликовано: 14 ноя 2021
- How to sell covered calls for passive monthly income - learn options trading
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Covered Calls:
When you own 100 shares of any company you can sell covered calls on your position and collect a payment called a premium simply for selling that option. This premium is paid to you by the person on the other side of the trade who is buying that option. Now it’s called covered calls because your position is covered by the 100 shares that you own. You are putting up the shares as collateral for this trade in case the trade goes against you and you are forced to sell your shares- You must have a collateral of 100 shares for each 1 option contract that you sell. So let’s say you own 100 shares of a stock and decide you want to sell a covered call on the stock. Here’s what’s going to happen step by step. You pick a strike price and expiration date for the option that you want to sell. The strike price must be higher than the current price of the stock. This is called selling Out-Of-The-Money Calls.
Company X is trading at $50 right now. I decide I am going to sell covered calls on my position so the first thing I have to do is choose a strike price I don’t think the stock will reach by a certain date. Let’s say by next month I don’t think company X will reach $55 which would be a 10% increase for the stock. So I pick to sell an option with a strike price of $55 and an expiration date of 1 month out. Once I sell this option a few things will happen. First the brokerage will put aside the 100 shares that I own as collateral for the trade. These are still my shares but I just can’t do anything with them before I exit out of my options trade. Secondly, I will get paid a premium for selling this option paid to me by the option buyer. Now this premium is put into my account right away. In this case lets say the premium is $2. I will get paid $200 because remember 1 option contract controls 100 shares so we multiply the premium by 100 for each contract - so boom I get paid $200 into my trading account.
Now at this point 1 of 3 things can happen with the trade.
Scenario #1 - the stock price does not reach the strike price by expiration. (That’s good)
Scenario #2 - the stock price reaches and exceeds the strike price by expiration (That’s bad)
Scenario #3 - You decided to close your position before expiration by buying back the contract and closing the trade.
Can you lose money selling covered calls? if you own stock and already are in the profit on your stock position then you CANNOT lose money selling covered calls and waiting until expiration. The worst thing that will happen is you’ll lose your shares - not lose them but be forced to sell them at the strike price. You might feel like you lost money if your stock shoots up way past the strike price - and you are forced to sell at a lower price - but you only lost the chance to make that extra profit. Remember, you should always sell calls at strike prices above where you bought the stock because then you’ll always be in the profit and whether or not your shares get called away you’d still make money
Do you get to keep the premium if your shares get called away? Yes - the premium gets deposited into your trading account right away and is yours to keep because you did not have to buy the option back. The option will be exercised and you’ll lose your shares but get to keep the premium.
What happens with my collateral - so when you put up collateral you can’t do anything with the shares until the option position is closed. The shares will be released back to you the day after the option expires or right away if you close your position early. Once you have your collateral back you can go ahead and sell another call using the same collateral for the next week or the next month.
Will I have to pay taxes on the premium I collect? Yes, simple answer - just like any trade, if you make a profit you will be subject to the all mighty short term capital gains tax so you’ll definitely want to keep that in mind and plan for that.
I am not a financial advisor - none of the above video is meant to be taken as investment advice. I am just showcasing MY own strategy and my investments should not be tried and duplicated based solely off the information in this video for risk of losing money.
As a beginner, I watched so many videos about buying/selling options and this is by far the best explanation ive ever seen. Im still confused at times but im gonna keep watchibg your videos to understand it more. Thanks.
You and me too like I get it!!!! But then I'm like stratching me head at another part of it....BUT WE GOT THIS!!!!!
Check out Tyrone Jackson's videos on covered calls. Pretty simple as well. I also think this video is really good too
I agree…. this is very good! Thank you!
My advice to new investors: Buy good companies stocks and hold them as long as they are good companies. Just do this and ignore the forecasts and market views which are at best entertaining but completely useless
The key to big returns is not big moving stocks. It's managing risk in relationship to reward. Having the correct size on and turning your edge as many times as necessary to reach your goal. That holds true from long term investing to day trading
May I ask which stocks are good? That holds true from long term investing to day trading
a few different ones but want others' opinions as well
what i think you need is a Financial Adviser, who can help you get in and out of any stock you buy at any time and you'd sure be in Profit
who would you recommend?
I work with Cioffibrown Alison who thought me various market I have been able to generate a good profit across high dividend yield stocks, ETF and bonds during this red season.
Should probably mention that in scenario #2 you sell your shares at profit and still collect the premium so it's not exactly a loss. I don't like closing a trade before expiration unless the stock goes out of control. Pick a strike price at which you don't mind selling your shares for profit, then sell PUT and collect some premium to try and buy those shares back at a strike price that is less than you sold. Rinse and repeat. The wheel strategy is great.
Thanks so much! Yupp, I go over all that in the video. I plan on doing a video on the wheel sometime in the near future :)
Alex, where did you go?
You really simplify things for us so that everyone can understand. Please don't abandon us now.
I love your videos!
Exactly!! I just found this channel and its great!!!
I think he just became a father. He may not have a lot of time to keep up with his YT channel 😢
Covered Calls are great for decreasing cost basis, especially when paired with Cash Secured Puts. Great introductory strategy for beginners!
Thanks Zack, that's right - so much possibility! thanks for watching :)
@@PandreaFinance could you please make a video about pairing with cash secured put !!!
Just search the wheel strategy for stocks. It just means to sell puts until assigned then turn around and sell calls after
Yep, it’s known as the Wheel Strategy. If you have some time, search a few articles or RUclips Videos. Maybe you can get a little bit of insight before Alex makes a video about, assuming he decides to.
Without a doubt, one of the BEST instructional videos on Covered Calls and especially on buying it back. Until now I've been sitting there hopelessly watching my stock increase beyond the strike price until it gets exercised. Now I know I could buy it back, at a price, still make the profit of the difference from the initial premium and sell it again for more premium. Thank you Alex.
Great video, I love this type of easy to understand content. Especially when it comes to options and covered calls! Keep it up!
Thank you for laying that out so clearly!
Thank you! I appreciate your free music as well AND your guide!
Thank you for teaching options. I did not know anything about option trading at all. I started reading and watching videos on RUclips. Until I found your channel I was lost. I guess I am a bit visual learner. You are the best of all of them. I mean it. You know how you say tick the like button, if I could I would hit it million times. Thats how helpful your videos. You seemed to stopped making videos over a year ago. I wish you start making videos again. Please come back. Best wishes.
Great description! I appreciate it
You are an excellent teacher. You make options much easier to understand--step by step. Love your sincerity and your humor! Thank you so much!
Great clarity. Thank you.
Suggestion: include visualizations, ppt in your video. It’ll help in understanding the concept even better. Your content and the way you articulate is great
Thank you 🙏🏾. You made it crystal clear.
*Good stuff bud! Killed it with this one!*
Hi Alex , this is one of the most informative options videos that i have seen . Thank You ! My question is this : i have a number of shares that i've bought before the pandemic and had not been able to dispose or let go as my position previously was to go long . Now , the value of the shares had drastically deteriorated because of the pandemic. In your video you said we should sell covered calls when we are making a profit off our collateral shares , mine on the other hand had been on the negative ... but i can still pick a strike price which i think the stocks will not hit within the expiration date that i may choose. Is that a safe trade and can i go ahead and do that so i can make money off my stocks that are negative while i wait for the recovery ? Hoping for a reply . Thx.
Hi Alex, I purchased my first covered calls today🥳 Thank you for your video, I made a mistake at the beginning, but then I went back and followed the step you showed to buy back the contract! YEAH!!! I am so exited, Thank you. I hope your income and followers multiply 1 Million times :) Next. I will buy a spread call, if you can make a video on that, that will be fantabulous ! Thanks again, you rock.
So glad you opened your channel, learning quite fast!
hey alex, i love how you incorporated a live example of the topic. Please do that more often and also,
I would love to see some videos about buying calls/puts live. Thanks.
I LOVE THAT YOU HAVE STARTED ADDING VISUALS TO THE VIDEOS! - keep it up Pandrea I love these videos - learning a lot :)
I've been wanting to jump in for so long. all of these " options for beginners" videos I've been watching for about a year... SMH.... Finally I found your videos!!! Please let me just thank you from the bottom of my heart. for some reason this video just removed all fear ( within reason ) and I'm currently paused @ 13:51... just bought 100 shares and sold a call for the 16th of next month.. I FINALLY PULLED THE TRIGGER! i can't wait to get a couple little trials out of the way and hopefully be able to one day get out of the office and work from home just trading!
Been binging Robinhood options videos for several days. This was by far the best example.. Thank you.
Five months from now I won't be able to understand shit what pandrea is saying in this video, I'm glad and proud of myself that i made a lot of progress in the world of options.. i understand everything in this video! I'm glad and happy and ready to make some money!! Thanks pandrea!!!
@Pandrea, thanks for the great video. This is the most simple and to the point explanation of options I found on RUclips! Quick question - When the options expire and the stock price is above the strike price, Robinhood will automatically transfer my 100 shares to the seller I guess. But does Robinhood automatically transfer the money to my account? I should see $ 100* strike price in my account..right?
Thanks in advance :)
Ive been searching for this video for some time now... I bought so many other videos and RUclipsrs explaining this and I may be only understood bits and pieces.... This is someone who knows it well enough to teach. I've always been told if you can't explain something easy enough to someone you don't know it well enough. Thank you for your video
I love the example. Thanks bro
Since you started your channel, I've watched your videos and I have been doing cover calls now for about 2 months. I have collected and won the premium thanks to your teachings. Thank you for what you do sir.
Thanks Alex! I found so much value in this video and am more confident in Selling Options! Also FYI to always save your profits before tax season - CA 6% + FED 22% capital gain tax.
Great guidance, thank you 🙏
Thank you! This video showed me exactly how to sell covered calls I really appreciate it. I’d been looking for a long time to find how to exactly do this
Nicely explained. Thank you.
Such a great teacher, Alex! Just found your videos and impressed by your passion to teach whatever you can with so much determination!! You really care and it shows!! Thank you for your hard work! This stuff is confusing but I’m sure with more understanding it will sink in more. Again, thanks!! 👍🎉
Excellent video, thank you.
Your videos have broken down the option process so well, I’ve started selling covered calls and cash secured puts this month and was just wondering how to close a position, and woke up to this video. Thank you!
Lucky you that you can afford 100 shares. I'll be doing that when I'm 49...
This was amazing! Great work!
@pandreafinance - I have been buying and selling stock for decades but had a long term bias against trading options (I know, I know)...Anyway about 6 months ago I decided to get educated and explore them. I have watched tons of videos across a lot of channels and I have been very selective with my subscriptions. You do an amazing job of quickly laying down what matters and a great mix of interest with education - happy to say yours is one of the channels I chose to subscribe to. Thanks for what you do, very appreciative.
This video has really really helped me as far as closing sell call. Thanks so much!
Appreciate the break down and the live example to close position🤙🏾
I appreciate you watching my friend!
Thanks for the great content, your a great teacher. I've been watching videos on options for weeks now and you explain it the best. Thanks!
Nicely done!! thank you for a example I can actually follow.
Loving the cool graphs during the examples....appeals to visual learners. Good stuff
THANKS! They only take a few hours to make no biggie haha :)
Thank you. You have the best videos on teaching options!
Amazing tutorial. Thank u!
Great video. Helped me make my first covered call trade ! Keep up the good content
Love your content bro, I really like the live trade demonstration!
Thank you Juan! I will do more of those then! :)
very simple way to explain,appreciate your content.
one of the best videos on how to sell covered call options! 🔥 keep up the good work!
that was my goal! thanks so much!
Great video
Thank you for the great content
Thank you!! I understand option trading better after watching your videos. You are also very great at teaching! Maybe consider becoming a teacher haha. Please keep uploading these kind of videos!! ❤️
When you made the trade and broke down what the -52 meant now I got it
You got the best covered call video on RUclips that’s what I was waiting
Hi alex. Thanks for the videos learning a lot.
The part that i am not understanding is scenario number 2.
You entered a contract and the strike stock price is higher than the current and its reached before expiration.
You end up selling the stocks at a higher price than you paid for in the first place plus keeping the premium.
I must have misunderstood.
Great breakdown dude. Do LEAPS together with PMCC next =) Would also love to hear your take on taxes on unrealized gains, as well as tips when trading options with earnings or ex-dividend dates in play. Would also love to see you do tutorials on some basic charting analysis. No pressure, haha!
Thanks so much! Yupp all that is on the list - wish I had time to do film all at once haha.
not sure which is better, your teaching skills or your entertainment. nice to have both.
Thanks for another great content. I started trading covered calls thanks to you. It is a great way to generate extra income passively. I can't wait for more options strategies you can share in the future!
This was great. Thank you so much. I plan to attempt my first selling pf a covered call when the market opens In a few hours. I've watched tons of videos on this and this was the first one that not only made sense but walked us through an example as well.
THANK YOU for explaining this (:
Alex, your videos are awesome. I’ve been looking for simple explanations of how options work and had yet to find one until I stumbled on yours. Thank you, sir!
Uncle Henry has great and easy explanation as well
Easy, understandable, best way to learn and teach great video!
Very informative and optimistic to watch. I'd love a video on buying short term puts. You kind of touch on the other side of the trading mirror with this analysis I guess.
Thanks for explaining the bids and asks, next up please cover open interest/high liquidity how important it is, if it at all, I'd love to see a breakdown of that.
Hello I live here in California, I'm just using this means urge you seeing this to give a try and appreciate me later. I saw your comment and I decided to put this down to let you know about him, He guides me with the exact time frame to trade which I made about $5k after trading alone and I recovered my losses. His strategy is really good i'll highly recommend him to you...
Great Video, Thank you
Dude! we asked, you answered. You actually made a killer video showing exactly how, on the app, you get out of a open options position. BEST video yet. THANK YOU 🙏🙏🙏🙏🙏🙏🙏
THANK YOU! haha yea I got so many comments on that and started planning the video right away :) I appreciate the kind words my friend
Great video. Just started today I’m pumped.
Thanks for the video. I'm not understand the part that Robinhood showed unlimited loss on screen?
You don't actually have unlimited loss potential when selling covered calls. But you still could lose a substantial amount of money in the worst case. For example, if the company goes bankrupt and the stock plummets to $0, you'll lose thousands of dollars.
Excellent. Now i understand the negative value
Omfg, you are the best, I always watched videos on covered calls but never understood, and you did an excellent job for me, really appreciate it 🙌🏽
You are great, have been watching your videos daily
Thank you so much
Awesome vid. Easy to understand, detailed, entertaining and giving me the ability to see the entire process made me a subscriber.
Dude! You are killing it! Can’t thank you enough for these videos. Keep’em coming man.
Doing my best man haha - thanks so much! 🔥👍🏻
Well done! Best video ive seen so far.
thanks, very insightful
Lucid explanation! Excellent tutorial.
Excellent tutorial. I love how complete this video, covering the end to end process. Very well done, thank you.
I have been unlucky few times selling covered call against some of my favorite stocks that shot up just as I entered into the agreement (but before that, it was moving sideways, DOH). But of course I could always buyback but hurt my ego of losing out that cost basis I used to brag about and of course the stock shotup higher. 😅😆
Not much, how about you?
Very informative and easy to follow 👍.
Thanks for explaining this so simply! I guess when i have more money I can do more purchases of shares and sell as calls
Great video!!!! You make a lot of sense
Great video been trying to understand options you broke it down perfect but how come you can't sell options on every stock ?
First of all, you're killing it man. Your videos are fresh, easy to understand and I want to be your friend 🤜🏼🤛🏼
Secondly, I'd like to put my quarter on the table and request for you to do a video showing how to collect profits without selling out of your shares.
Appreciate you, buddy!
I remember having a consultation with a financial analyst last August, and it was incredibly insightful. Can’t stress enough how helpful experts in this field are!
Absolutely agree! A good financial analyst can make a world of difference. What specific insights did you gain?
Having Jonas Herman as my trade analyst, he has guided me to identify key market trends, pinpointed strategic entry points, and provided risk assessments, ensuring my trades decisions align with market dynamics for optimal returns.
That’s awesome! I’ve been contemplating hiring one since I can’t get a hang of trading even after buying courses. I’d like a discussion with him. Any means to reach him?
Hermanw jonas (a Gma!L comm
Is he taking commissions for his services? Yes, I’m I still making money in the process? Hell yes!
I started working with Jonas back in June, and my financial goals have never been clearer. It’s like having a strategic partner for your money with a solid track record.
Can you make a video where you show how to profit or passive Income from buying options? Or show how you would go about doing it if you were to do it. I love your videos but don't want to sell options as I don't have alot of money to be buying a hundred shares to be doing these covered calls and then lose them. I have made a couple thousand on buying options but that wasn't to say I lost money along the way as well (I lost 800 in a day) I just want to avoid making mistakes like that because to be honest I don't have a strategy I just buy what I can afford and hope for the best. Any advice would help Thanks and keep up the great work!!!!
There is no way to generate passive income when buying options. Time decay will always be working against your positions, slowly eating away at their value and generating losses. You need to be on the selling side of options for time decay to work in your favor.
Hey I love the videos, I just had a question about selling covered calls, when you pull up the order form, it says there’s a bid and an ask, you didn’t really go over what those were in the real time example but the ask always seems to be over the bid. When selling the contract, can you put the ask price in first instead of the bid? Why’d you put the bid price when selling it and the ask price when buying it? Can you choose to put the ask price in when selling it since it’s always higher?
The Bid price is the highest price someone in the market is currently willing to pay for the option. And the Ask price is the lowest price someone is willing to sell the option. Generally, you should place an order with a Limit price that is right between the Bid and Ask. In most cases, someone will be willing to meet you halfway. If not, then slowly change your Limit price to get closer to either the Bid or Ask (depending on if you are buying or selling). Selling right at the Bid or buying right at the Ask is not a good idea because you are literally giving away a few extra dollars by doing so.
Great explanation.
Wow u explained this to perfection Pandrea! I've said it before and I'll say it again you're probably one of the best at trading options dude!!
Made my day! Thank you!
Simplest video I’ve ever seen. You’re my mentor now 🤝
Hey Pandrea! When buying leap is delta of .83 good enough if there’re no higher delta available in the underlying stock? Also does the delta increases or decrease depending on the IV?
What a will explained video I swear you can teach a lot better then any other RUclipsrs
Thanks so much! I spend a lot of time planning and making sure the video is structured properly. Guess its working :)
really appreciate the video tutorial and actually showing how do it on RH
Great job explaining. No questions from me man! 👍 It’s your examples that help a lot.
Ayy I appreciate that! means a lot!
Great explanation! Liked and subscribed. Thank you.
Shared this vid as well. Check back with you in a year.
great video really with helps understanding the concepts
This is great information and everything, but for those who are just starting out with a small portfolio, a lot of companies with stocks that are on the cheaper end, most options have a premium of $0.01, with the contracts that actually have a decent premium being extremely risky strike prices. Would you consider making a video with some company recommendations to start out with for those starting out with smaller portfolios?
Hi Archie - hmm, it really depends on the stock and the IV and time to expiration. For the ones you see with $0.01 you are looking at the closest expiration date and pretty far out-of-the-money. You also should look at the volume on that stock - maybe nobody is buyings/selling options in it. I have added your video request to my list :)
These are okay as a training too..
You may not like this answer, but this strategy is not for people with small portfolios. You need 10k+
Hey Alex, you have very helpful videos! I’m pretty new at this. I’ve been focusing on finding options with >80% profit and maximum premium, and choosing stocks under $5 to trade since I have a small portfolio. And I’m choosing 1 week to a month out for expiration. The problem is, I’ve been finding these great sells w/ high premiums and high chance of profit, but all my orders have gotten cancelled by the end of the day. Any insight on what’s happening would be really grateful!
@@jacobgreenberg5684 Crappy stocks have low liquidity, which means there isn’t much interest in people buying the options that you are selling. Don’t sell options until you can do it with real companies/ETFs
By far the best explanation video , thanks a lot. I know how busy you are or if anyone can answer this ; why is it that when I enter to sell a call it dosent seem to be asking me for collateral? Like it seems it lets me sell the call without having enough (100 shares or the cash)
Mr. Pandrea: i just learned selling options for premium about 3 months ago. while i learned via 3 minute talk with my son, i realized after doing it there is more to it. That said, when selling covered calls, why doesn't anyone talk about when to and not to close a covered call when the stock tanks faster then expected. If the stock starts going down too fast and get past your breakeven, whats the best 'options' :/ at that point. ive just watched your covered call and your 101 to options and i look forward to more advanced learning and better understand IV. I sure would love to talk to you,i wonder if and how that is possible. thank you for your work, sincerely. sas
Very few people talk about it because that doesn't get views :) If all you talk about is how easy and simple and passive option selling is, then people will flock to your channel. But that is most certainly NOT how trading options is in reality. You are absolutely correct...there is considerable risk with selling covered calls because the stock could plummet drastically. So unless you don't want to hold the stock for the very long-term (in which case you don't care about short-term drops), then I would suggest having a stop loss in place.
Alex, I never comment on trading-related videos because, frankly speaking, I do not understand them completely. It's the first time I have glued to your videos, 4th in succession in the last 2 hours (even writing my notes), and it's the first time, I can understand the concept and strategy both. Thank you so much. You are amazing.
Wow! Awesome video. High quality information, nicely presented and awesome animations. Greetings from Germany
Hey i liked how you explained the video. But had one question, once we are 1 day before the expiration date of selling the covered call and the stock ends up being below the contract strike price, do we have to buy back the position so we can close it and keep your leftover premium or we just leave it until it expires collecting the complete premium and the brokerage will automatically close our position?
Great Video and finally, the first time I've seen one (and I've watched hours and hours of these trying learn) that mentions taxes. I've been selling covered calls inside of my ROTH IRA so I think I'm insulated from all capital gains but of course I also can't write off any losses; though there really aren't any so I hope I'm right on this point. Thanks.
thats a nice jacket!
Hey Alex ! I have a question about options. I hope this makes sense.
What happens if you sell a put and then sell those contracts ? (Instead of buying them back for locking profit)
In what situation would that be advisable ? What would happen with the premium ?
Thanks !!
You are gift from heaven, I spent tons of money just to understand concepts no one made this easy. Thank s giving back and I’ll pay forward :) to poor brother or sister like me.