Trading Options Online Selling Covered Calls

Learning different strategies for trading stock options online is really not that difficult. The difficulty comes in the fact that for each trading strategies you are presented with many choices of what to do. Stock market traders really have only three decisions to concern themselves with. Stock traders can either, buy, hold, or sell. However, when you trade stock options the choices are endless. Perhaps this is why they call them options.

Selling covered calls is one of the strategies to be considered. While it may not be necessarily easy to learn the options strategy of selling covered calls, especially in the beginning, is widely considered a conservative option strategy. Generally selling covered calls is used to generate income or cash flow, which makes it very popular among both professionals and individual investors. Some options traders consider selling covered calls a bit boring. However, I have never spoken with anybody who thinks it is boring to make money.

What does it mean to sell covered calls? When you sell a call on the stock that you own, it is known as a covered call. The word covered means that your position is protected because you own shares of the stock you are selling. Essentially when you sell a covered call, you are selling the buyer the right to buy your stock. So that when you sell a covered call, you must own the stock. You have sold the rights to sell the stock to the buyer and the buyer now controls the rights to the stock until the expiration date. The main reason you sell covered calls and give up your right to sell the stock is that you want to make money. You will receive compensation from the buyer known as the premium. That is why you sell covered calls to begin with.

The reasons for selling covered calls and the advantages they have are twofold. You can use the options to bring in income or increase cash flow or you can use the options is a way to sell a stock that you own. Other advantages include that you receive a premium but still own the stock. That means if the stock goes up in price you receive capital gains. You can also use a covered call strategy to sell stock you are thinking of selling anyway. There are always buyers who will gladly give you their money.

Selling covered calls can be likened to buying a house and rented it out. The difference is you’re not renting your house you are renting your stocks. There are also certain tax advantages to selling covered calls. Make sure to contact your tax advisor to see if you qualify. Be sure to check other information on trading options online and choosing profitable covered calls.