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How to Trade Covered Calls Effectively
Jul 19, 2024
How to Trade Covered Calls Effectively
Introduction
Most traders struggle with trading covered calls effectively.
Video aims to teach 3 key strategies to significantly improve returns.
Presented by Mike Bella Fury and Seth Freyberg from S&B Capitals in NYC.
Goal: Help traders grow their trading accounts.
Basics of Covered Calls
Traditional Covered Call:
Buy 100 shares of stock, sell a call option on those shares.
Outcomes:
If stock closes below strike price: Trader keeps the premium.
If stock closes above strike price: Shares get sold at the strike price, plus the premium is kept.
Key 1: Avoid Trying to Squeeze Every Penny
Reason:
Trying to maximize every last penny is counterproductive.
Example:
Trader owns 300 shares of Apple.
Implements a quarterly covered call program.
Makes a profit but can be optimized further.
Optimization:
Consider closing the calls early when they lose about 90% of their value.
Key 2: Use Deep In-The-Money Calls
Theory:
Use deep in-the-money calls instead of buying shares outright.
Example:
Use of synthetic covered call strategy.
Buy deep in-the-money calls with long expiration, sell higher strike calls shorter-term.
Produces higher returns with lower initial cash outlay.
Key 3: Sell Calls at Your Price Target
Recommendation:
Always sell calls at your price target, not just at the highest premium.
Example:
Tesla stock example showing more profit when calls are sold at the price target versus the highest premium.
Summary
Covered calls are effective but can be optimized with professional techniques.
Employing strategies like early closure, deep in-the-money calls, and correct strike placement increases overall returns.
Encouragement to learn more advanced options strategies.
Additional Resources
Registration for a free workshop on three more option strategies.
Link provided to an options class.
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Full transcript