Covered calls do provide some downside protection, but if the bottom drops out of a stock, you're going to realize just how paltry that protection was. You never have to push a Search button and wait for an entire new page load to see the results. When there are more puts than calls, the ratio is above 1, indicating bearishness. No thanks, I prefer not making money. I have a margin account so no, they only require the maintenance which is approx. If you can afford more contracts you can choose shorter term I like 56 days and go with a smaller premium for example 0.
What are the best stocks for covered calls? This is an important question whether you're writing covered call options for the income or as part of .
The Second-Biggest Obstacle to Options Profits
The biggest market drop in recorded history on Monday… a wild end-of-day plummet on Tuesday… a huge up day on Wednesday… and more bullish action today? So in times like this, I like to use a really great tool that identifies what I call my "Top Movers" — the stocks and ETFs that have had the biggest percent moves and best correlation to the market.
Then I can focus on finding the best stock with the best option trade and the best potential to double in value on the smallest move in the stock. You can do all your homework and make all the right moves, pick a solid stock with good fundamentals, even anticipate where the markets are going in the weeks ahead.
When the stock does not move, day after day, the time decay is even worse. You're not getting any stock price move that is either intrinsic to counter theta decay, or you're not getting any stock price move that gets your options close to "in the money" to get you that intrinsic value increase. This is why I favor the "in the money" ITM options to begin with on my shorter-term directional long call or put option trades. You can probably see where I'm going with this. The best way to avoid this is to trade calls and puts on stocks that move in price.
You can see movement or volatility in price by looking at a chart. If a stock trades sideways in a range for three, six, or more months, that is not a stock to try and trade options on.
That's not to say you should avoid any stock that trades sideways. If that sideways range trades slightly up or down in trend but has a five-point range between support and resistance, then trading options on that stock becomes very lucrative indeed.
I am not a fan of going through all the "optionable" stocks one by one on a charting program. There are over 2, optionable stocks, and when you add in ETFs and indices, that number goes way up. Trying to go through them one by one will eventually drive you crazy. Fortunately, I've developed a great method to whittle it down to the 10 best stocks at any given time.
Click here to jump to comments…. Tom Gentile is one of the world's foremost authorities on stock, futures and options trading. With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.
Can you direct me on where this is? What site is best for screening for options. Find out about another approach to trading covered call. Looking at another example, a May 30 in-the-money call would yield a higher potential profit than the May Therefore, we have a very wide potential profit zone extended to as low as Any upside move produces a profit. While there is less potential profit with this approach compared to the example of a traditional out-of-the-money call write given above, an in-the-money call write does offer a near delta neutral , pure time premium collection approach due to the high delta value on the in-the-money call option very close to While there is no room to profit from the movement of the stock, it is possible to profit regardless of the direction of the stock, since it is only decay-of-time premium that is the source of potential profit.
Also, the potential rate of return is higher than it might appear at first blush. That may not sound like much, but recall that this is for a period of just 27 days. If used with margin to open a position of this type, returns have the potential to be much higher, but of course with additional risk.
In this yield-seeking environment, selling options is a strategy designed to generate current income. If sold options expire worthless, the seller gets to keep the money received for selling them. However, selling options is slightly more complex than buying options, and can involve additional risk.
Here is a look at how to sell options, and some strategies that involve selling calls and puts. The buyer of options has the right, but not the obligation, to buy or sell an underlying security at a specified strike price, while a seller is obligated to buy or sell an underlying security at a specified strike price if the buyer chooses to exercise the option.
For every option buyer, there must be a seller. With this information, a trader would go into his or her brokerage account, select a security and go to an options chain. Once an option has been selected, the trader would go to the options trade ticket and enter a sell to open order to sell options.
Then, he or she would make the appropriate selections type of option, order type, number of options, and expiration month to place the order. Selling options involves covered and uncovered strategies. A covered call , for instance, involves selling call options on a stock that is already owned. The intent of a covered call strategy is to generate income on an owned stock, which the seller expects will not rise significantly during the life of the options contract.
The trader expects one of the following things to happen over the next 3 months: To capitalize on this expectation, a trader could sell April call options to collect income with the anticipation that the stock will close below the call strike at expiration and the option will expire worthless. This strategy is considered "covered" because the 2 positions owning the stock and selling calls are offsetting.
Although there is still significant risk, selling covered options is a less risky strategy than selling uncovered also known as naked positions because covered strategies are usually offsetting. In our covered call example, if the stock price rises, the XYZ shares that the investor owns will increase in value.
If the stock rises in value above the strike price, the option may be exercised and the stock called away. Thus selling a covered call limits the price appreciation of the underlying stock. Conversely, if the stock price falls, there is an increased probability that the seller of the XYZ call options will get to keep the premium.
Uncovered strategies involve selling options on a security that is not owned. In our example above, an uncovered position would involve selling April call options on a stock the investor does not own. Selling uncovered calls involves unlimited risk because the underlying asset could theoretically increase indefinitely. If assigned, the seller would be short stock.
They would then be obligated to buy the security on the open market at rising prices to deliver it to the buyer exercising the call at the strike price.
The intent of selling puts is the same as that of selling calls; the goal is for the options to expire worthless.
The two most consistently discussed strategies are: (1) Selling covered calls for extra income, and (2) Selling puts for extra income. The Stock Options Channel website, . Finding the best stocks for options trading is actually very easy when you know what to look for and have a solid understanding of what your portfolio "needs" to maintain it's . Both online and at these events, stock options are consistently a topic of interest. The two most consistently discussed strategies are: (1) Selling covered calls for extra income, and (2) Selling puts for extra income. The Stock Options Channel website, and our proprietary YieldBoost formula, was designed with these two strategies in mind.