Covered Calls For Volatile Times

Selling covered calls is always a great strategy, but it becomes even more important when the markets are volatile like they are today.

For all those who don’t know what a covered call is, it is a strategy where you buy a stock and sell call options on it.  These call options allow you to collect monthly premium on your stock, however you are obligated to sell your stock if it reaches a certain level. 

This means if you own a stock that is priced at $40 you can sell the $45 call on the stock for a set amount of premium, say $1.  This allows to collect the $1 instantly, but gives you the obligation to sell it at $45 at the end of the month, if the option is exercised.

Now you will not get called out if your stock is at $40 and forced to sell it at $45, but if it goes up to $49 you will have to sell it at $45, because you sold the call.  So even though it allows you to make money you limit your possible gain for the month.

But you do not even need a stock to go up for you to make money.  You can simply buy some strong companies and ETFs and sell some calls on it.

This makes them great to use when the markets are volatile, Instead of trying to predict every little swing in the market, which can be very stressful during a volatile market, you can simply enter into some value stocks and sell covered calls on them until the markets start to trend again.

A word of warning however, even if you are planning to sell calls on a stock you still need to know what you are buying. Selling a $1 call on a stock will not help you if your stock falls 30 points.

For more information about covered calls visit http://www.stocks-simplified.com/covered_calls.html