Selling Covered Calls

The covered calls options trading strategy provides traders the ability to generate additional income from investments in a neutral market. An options trader who wishes to benefit from a fairly neutral market may consider selling covered calls. Selling covered calls is the selling of calls on an asset (stock) owned by the trader at a price point which he or she is wiling to sell this asset (stock) at.

The time decay benefits to the side of the options seller and the closer the time to expiration, the more the sold call looses value, thereby increasing the likelihood of profit - even in a neutral market.

The following trading strategy delivers some benefits:

• A trader receives a premium when he or she sells call options on a previously purchased stock that he or she is willing to sell at a specified price.
   
• If the stocks a trader owns is below the strike price upon expiration the trader retains the premium as a profit.
   
• If the stocks owned is above the strike price upon expiration the trader may have to completely or partially return the premium or even more. However, the trader will receive a higher profit through the sale of the owned stock's rise in value.
   
• If the stocks drops in price the trader's loss is reduced by the premium received from the sold options calls.

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