Covered calls provide me the following benefits:
To get these benefits, there is an opportunity cost for using covered calls. I forgo any gains above the strike price since I am obligated to sell at the strike price. For example, if I sell a $60 call and the stock advances to $80, I am still obligated to sell at $60 and, therefore, do not get the $20 gain above $60.Hence, I prefer to use covered calls at short term highs when a stock is in a sideways trading channel. Thus, when the stock pulls back, I keep the call premium, wait for the stock to rally, and start the cycle again.
For more on Strategies and Plans, check back every Monday for a new segment.
This is not financial or investing advice. Please consult a professional advisor.
Copyright © 2010 Achievement Catalyst, LLC