For the Beginner: How to Sell Covered Calls

Learning how to sell covered calls is simple. Learning how to make the most of the options can be a bit more complicated. But, there are lots of training products available and many investors offer seminars. So, this is something that the beginner can master.

What You Need before Selling Covered Calls

You’ll need a stock broker, if you don’t already have one and a computer with internet access. If you don’t already own the stocks or assets, you’ll need to purchase them, unless you want to trade “naked”.

Where the Profit comes from when Selling Covered Calls

When investors trade naked calls, they are betting that the stock price will fall or stay flat. If that is what happens, they keep the premium for the option. If not, they are forced to buy the stock on the open market. In other words, they must have the money that it takes to invest in the stock either way. But, they make no profits from buying at a lower price and selling at a higher one. Their only profit is the premium.

Learning about Selling Covered Call Strategies

Your stock broker may be able to help you learn how to sell covered calls, but you’ll need to develop your own strategy or use the strategy developed by an experienced investor. In order to sell options on your stocks, you must own at least 100 shares, as the options are sold in 100 share increments.

Many online brokers allow you to buy 100 shares and sell 1 call simultaneously. You receive the premium immediately. You can generate monthly income by having the options expire every month, assuming that the strike-price is not reached. If it is, simply buy another 100 shares of another stock and sell another call.

As I mentioned in the beginning learning how to sell covered calls is simple. Mastering the technique can be difficult. If the strike price is too high, the option may not be purchased. If it is too low, then the stock outperforms the option. In other words, you could have made more money by selling the stock, instead of the option.

If you are new to all of this, you will also need to learn how to open an account, monitor stocks and come up with a strategy for "when" to buy. You can get advice on all of these subjects online. Soon, you may become an expert at how to sell covered calls. Then, you can write a book about it, educate other people and make even more money ;-)