In Today's Show I go over in detail Covered Call Writing and what I call my Triple Threat Strategy. Review this definition then watch my video below.
What is a 'Covered Call'
A covered call is an options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This is often employed when an investor has a short-term neutral view on the asset and for this reason hold the asset long and simultaneously have a short position via the option to generate income from the option premium.
Breaking Down The 'Covered Call'
For example, let's say that you own shares of the Sun Edison at $.40 and like its short-term prospects as well as its share price. If you sell a call option on SUNE for $.50, you earn the premium from the option sale but cap your upside.
One of three scenarios is going to play out:
a) SUNE shares trade flat (below the $.50 strike price) - the option will expire worthless and you keep the premium from the option.
b) SUNE shares fall - the option expires worthless, you keep the premium, and you outperform the stock.
c) SUNE shares rise above $.50 - the option is exercised, and your upside is capped at .50 the option premium. In this case, if the stock price goes higher than $.50, plus the premium, your buy-write strategy has under-performed the SUNE shares.
To know more about covered calls and how to use them, check out the next class of Mojo University.
When you are done with MOJO University you will have a 100% Game Plan and be ready to execute with:
outcome goals = $100,000 to $1,000,000 game plan enabled
process goals = trade plays to accomplish the outcome goal
self-belief & positive expectancy
patience & selective attention
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