{"id":59522,"date":"2024-09-26T14:15:04","date_gmt":"2024-09-26T14:15:04","guid":{"rendered":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/weekly-overview\/covered-call-introduction-to-this-options-strategy-this-is-what-you-need-to-know\/"},"modified":"2025-03-05T07:00:39","modified_gmt":"2025-03-05T07:00:39","slug":"covered-call-introduction-to-this-options-strategy-this-is-what-you-need-to-know","status":"publish","type":"post","link":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/blogs\/covered-call-introduction-to-this-options-strategy-this-is-what-you-need-to-know\/","title":{"rendered":"Covered Call: Introduction to this options strategy &#8211; THIS IS WHAT YOU NEED TO KNOW!"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"59522\" class=\"elementor elementor-59522\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-7fd5ba9f elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"7fd5ba9f\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-33aba491\" data-id=\"33aba491\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-6a48eef3 blog-first-wide-img elementor-widget elementor-widget-image\" data-id=\"6a48eef3\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" src=\"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-content\/uploads\/2024\/12\/covered-call-optiestrategie.jpg\" title=\"\" alt=\"\" loading=\"lazy\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-73885026 elementor-widget elementor-widget-text-editor\" data-id=\"73885026\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h2><strong>Covered Call Option Strategy<\/strong><\/h2>\nIf you are just starting out in investing, it is important to learn different strategies to expand your knowledge and optimize your portfolio. In this blog, you will learn all about the &#8220;<b>covered call<\/b>&#8220;, a popular options strategy that you can use to generate additional income from your <a href=\"https:\/\/compareallbrokers.com\/nl\/kennisbank\/aandelen\/aandelenportefeuille\/\">stock portfolio<\/a>. We will also briefly discuss some related terms, such as covered put, covered options and covered call spread. Let&#8217;s get started!\n<h3><strong>What is a covered call?<\/strong><\/h3>\nA covered call is an options strategy where you sell a <a href=\"https:\/\/compareallbrokers.com\/nl\/kennisbank\/opties\/wat-zijn-call-opties\/\">call option<\/a> on a stock while owning the underlying stock. The goal of this strategy is to generate additional income from the premium received from the option, without the risk of an uncovered call. Here is a quick overview of the key terms:\n<ul>\n<li>Call option: A contract that gives the buyer the right, but not the obligation, to buy a certain number of shares at a predetermined price (strike price) on or before a specific date (expiration date).<\/li>\n<li>Option premium: The amount the buyer of an option pays the seller to obtain the right granted by the option.<\/li>\n<\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-26cfa681 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"26cfa681\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-6cd71474\" data-id=\"6cd71474\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-5db20da0 elementor-widget elementor-widget-text-editor\" data-id=\"5db20da0\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h4>How does a covered call work?<\/h4><p>Suppose you have 100 shares of company X in your portfolio and you believe that the share price will not rise much in the near future. You can then sell a call option and receive the option premium as additional income. If the share price does not rise above the option strike price, you keep the premium and continue to own the shares. If the share price does rise above the strike price, the buyer of the option can decide to exercise the option and buy the shares from you at the strike price. In this case, you sell the shares and still keep the premium received.<\/p><p>The covered call strategy is especially suitable for investors with a neutral to slightly bullish short-term market view. It is important to know that this strategy is not suitable for shares that are highly volatile or shares that you expect to rise significantly in value.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-75b379e6 elementor-widget elementor-widget-text-editor\" data-id=\"75b379e6\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h3><strong>Benefits of a covered call\u00a0<\/strong><\/h3>\n<ol>\n<li>Additional income: By selling call options, you receive additional income in the form of option premiums, which can be attractive in a market with low interest rates.<\/li>\n<li>Risk reduction: A covered call reduces the risk compared to simply holding shares, because the premium received serves as a buffer against price declines in the underlying share. This makes the strategy suitable for investors who are looking for some protection against market volatility.<\/li>\n<li>Flexibility: Covered calls can be adapted to different market conditions, risk tolerance and investment goals by choosing different strike prices and expiration dates for the options.<\/li>\n<li>Lower transaction costs: Since you already own the underlying shares, you do not have to buy additional shares to cover the call option. This can result in lower transaction costs compared to other options strategies that require buying or selling shares.<\/li>\n<\/ol>\n<h3><strong>Risks and disadvantages of covered calls<\/strong><\/h3>\n<h4>Limited upside potential<\/h4>\nIf the stock price rises sharply, you run the risk of selling the shares at the strike price, potentially missing out on future profits. This is a significant disadvantage of the strategy, as you give up the potential for unlimited profits in exchange for the option premium received.\n<h4>Loss protection<\/h4>\nAlthough the premium received provides some protection against price declines, the loss can still be significant if the underlying stock price falls sharply. In this case, the premium may not be enough to offset the loss. It is therefore important to combine the covered call strategy with other risk management techniques, such as setting stop-loss orders. <h3><strong>When to Use and When Not to Use a Covered Call<\/strong><\/h3>\nA covered call can make sense in a number of scenarios, including the following:\n<ul>\n<li>You expect the stock to move little: With a covered call, you don\u2019t want the stock price to rise above the option strike price, at least until after the option expires. If the stock remains more or less stable, you can still collect the option premium and not lose much, if any, of your profits.<\/li>\n<li>You want to generate income from a position: If you want to take advantage of the relatively high price of option premiums, you can set up a covered call and generate income. In effect, it\u2019s like creating a dividend from a stock.<\/li>\n<li>You\u2019re trading in a tax-efficient account: When you use covered calls, you generate income and you may have called away the stock, both of which can create tax liabilities. Setting up covered calls within a tax-advantaged account such as an IRA can therefore be attractive, allowing you to avoid or defer taxes on these profits.<\/li>\n<\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-385213a9 elementor-widget elementor-widget-image\" data-id=\"385213a9\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" src=\"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-content\/uploads\/2024\/12\/covered-call-optie.jpg\" title=\"\" alt=\"\" loading=\"lazy\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-1e68e7b3 elementor-widget elementor-widget-text-editor\" data-id=\"1e68e7b3\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h4>When to Avoid a Covered Call<\/h4>\nA covered call is probably best avoided in the following situations:\n<ul>\n<li>You expect the stock to rise in the short term: There is little point in giving away the potential return of a stock in exchange for a relatively small amount of money. If you think a stock is about to rise, you are probably better off holding on to it and letting it rise. After it has risen significantly, you may want to consider setting up the covered call.<\/li>\n<li>The stock has a lot of downside risk: If you own a stock, you generally expect it to rise. However, don&#8217;t use a covered call to get extra money from a stock that looks like it will fall significantly in the short or long term. It is probably better to sell the stock and move on, or you can try to short sell the stock and profit from the decline.<\/li>\n<\/ul>\n<h3><strong>Related Terms and Strategies<\/strong><\/h3>\n<strong>Covered Put<\/strong>\n\nA covered put is similar to a covered call, but instead of selling call options while holding the underlying stock, you sell <a href=\"https:\/\/compareallbrokers.com\/nl\/kennisbank\/opties\/wat-zijn-put-opties\/\">put options<\/a> while holding a short position in the stock. This can generate additional income and reduce the risk of the short position somewhat.\n\n<strong>Covered Options<\/strong>\n\nCovered options refers to both covered calls and covered puts. These are options strategies where the seller of the option holds the underlying stock or a short position in the stock, thereby reducing risk.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-248ad499 elementor-widget elementor-widget-text-editor\" data-id=\"248ad499\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<strong>Covered Call Spread<\/strong>\n\nA covered call spread is a more advanced options strategy where you simultaneously buy and sell a call option with different strike prices or expiration dates. This can further reduce risk and tailor the return on the strategy to your specific market expectations.\n<h3><strong>Covered Call &#8211; An Example<\/strong><\/h3>\nLet\u2019s look at an example to see how a covered call works. Imagine you own 100 shares of a hypothetical company called XYZ, which is currently trading at $45 per share. You decide to write a covered call with a strike price of $50 and a premium of $1.50.\n<h4>Scenario 1: Stock Stays Below Strike Price<\/h4>\nIf stock XYZ does not reach the strike price of $50, you have earned 100 x $1.50 = $150. The option expires worthless, and you keep both your shares and the premium you received. In this case, by writing the covered call, you have successfully generated an additional return in addition to the value of your shares.\n<h4>Scenario 2: Share rises above the strike price<\/h4>\nSuppose that share XYZ rises above \u20ac50 before expiration. In that case, you will have to sell the shares for the strike price of \u20ac50, if you are appointed. Your maximum profit is then the received premium of \u20ac150 (100 x \u20ac1.50), and you have given up the potential benefit of a price increase above the strike price.\nIn the best scenario, the price rises to \u20ac50. In that case, you have both (paper) profit on your shares and on the written call. You can choose to sell to realize a price profit. But you can also choose to close the option at a higher premium (for example \u20ac2) than the originally received premium. You can then sell a new XYZ call with a longer term, for example with an exercise price of \u20ac60 at a premium of \u20ac1.50. This is also known as a \u201crollover.\u201d\n\nThis example shows how a covered call can be used to generate additional income from stocks, beyond any dividends or capital gains. However, it is important to remember that you run the risk of having to sell your stocks before the strike price, potentially missing out on future price increases.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-480b1ff7 elementor-widget elementor-widget-image\" data-id=\"480b1ff7\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" src=\"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-content\/uploads\/2024\/12\/covered-call-en-put.jpg\" title=\"\" alt=\"\" loading=\"lazy\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-f84345f elementor-widget elementor-widget-text-editor\" data-id=\"f84345f\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h3><strong>Covered Put &#8211; An Example<\/strong><\/h3>\nNow let&#8217;s look at an example of a covered put strategy. Imagine that you have shorted 100 shares of a company called ABC at a price of \u20ac50 per share. At the same time, you sell a put option with a strike price of \u20ac45 and a premium of \u20ac3.00.\n<h4>Scenario 1: Share rises above the strike price<\/h4>\nIf the price of ABC stock rises to \u20ac60, you lose \u20ac10 on the short position. However, thanks to the option premium of \u20ac3.00 received, the total loss is limited to \u20ac7.00 (\u20ac700 in total). The break-even point in this case is \u20ac53. If the price of ABC rises to \u20ac53, the loss on the short position of \u20ac3 will be exactly offset by the premium of \u20ac3 received. <h4>Scenario 2: Share falls below strike price<\/h4>\nThe maximum profit on this position is the difference between the strike price of the option and the price at which you went short, plus the premium received. If the price of ABC falls to \u20ac45 or lower, you are obliged to buy the shares at \u20ac45. The short position will then earn you \u20ac5 (\u20ac50 &#8211; \u20ac45). Together with the option premium of \u20ac3.00 received, the total profit is \u20ac8.00 (\u20ac800 in total).\n\nThis example illustrates how a covered put can be used to make a profit when the price of a share falls. However, it is important to remember that the maximum loss is theoretically unlimited, since the price of a share can rise indefinitely. In this case, the premium received limits the loss somewhat, but the risk remains. Covered puts are generally only used by experienced investors, since the loss can be unlimited.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-4d144538 elementor-widget elementor-widget-text-editor\" data-id=\"4d144538\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h3><strong>Practical Tips for Implementing Covered Calls<\/strong><\/h3>\n<strong>Choose Stocks Carefully<\/strong>\n\nChoose stocks that you would be comfortable holding for a long time and that are stable or show moderate growth. Avoid stocks with high volatility or that can rise sharply, as in such situations you may miss out on future profits by exercising the call option.\n\n<strong>Choose the Right Strike Price and Expiry Date<\/strong>\n\nWhen selecting the strike price and expiry date for the call option, consider your market expectations, risk tolerance and investment goals. A higher strike price and a longer expiry date can lead to higher option premiums, but also increases the risk that the option will be exercised and you will have to sell the stock.\n\n[investor]\n\n<strong>Monitor Your Positions and Adjust as Needed<\/strong>\n\nMonitor your covered call positions regularly and adjust them as needed. If the underlying stock price rises or falls significantly, consider adjusting the strike price or expiration date of the option to manage your risk and maximize your returns.\n\n<strong>Consider Using a Low-Cost Broker<\/strong>\n\nTransaction costs can have a significant impact on your returns when trading options. Choose a broker with low trading costs and no hidden fees to maximize your returns.\n<h3><strong>Covered Call Option Strategy: Conclusion<\/strong><\/h3>\nA covered call is a popular options strategy for beginning investors looking to generate additional income from their stock portfolio. While it offers some advantages, such as risk reduction and additional income, there are also some disadvantages and risks to consider. By educating yourself about this strategy and related terms, such as covered put, covered options, and covered call spread, you can make more informed investment decisions and optimize your portfolio. Remember to always monitor and adjust your positions as needed, and be aware of transaction costs when trading options.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-5d6ec287 elementor-section-stretched elementor-section-full_width elementor-section-height-default elementor-section-height-default\" data-id=\"5d6ec287\" data-element_type=\"section\" data-e-type=\"section\" data-settings=\"{&quot;stretch_section&quot;:&quot;section-stretched&quot;}\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-21aba1c6 section-bg-shape top text-area-section\" data-id=\"21aba1c6\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-33db67f1 related-blog-section-title elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"33db67f1\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-inner-column elementor-element elementor-element-5b45da11\" data-id=\"5b45da11\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-1128d30e elementor-widget elementor-widget-text-editor\" data-id=\"1128d30e\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h2>Our reading tips<br \/><br \/>for the novice investor<\/h2>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Covered Call Option Strategy If you are just starting out in investing, it is important to learn different strategies to expand your knowledge and optimize your portfolio. In this blog, you will learn all about the &#8220;covered call&#8220;, a popular options strategy that you can use to generate additional income from your stock portfolio. We [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":58020,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[103],"tags":[195],"class_list":["post-59522","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blogs","tag-investing"],"acf":[],"_links":{"self":[{"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/posts\/59522","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/comments?post=59522"}],"version-history":[{"count":4,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/posts\/59522\/revisions"}],"predecessor-version":[{"id":63182,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/posts\/59522\/revisions\/63182"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/media\/58020"}],"wp:attachment":[{"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/media?parent=59522"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/categories?post=59522"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/devwp1.websiteserverhost.biz\/sharesunderten\/wp-json\/wp\/v2\/tags?post=59522"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}