AAN- Example Of A Covered Call Option Trade
FYI: Earning is A.M. on 2/14/2018 * Price Action is about Cloud indicator & from my reading positive earnings and outlook at $44-$46.
The covered call involves writing a call option contract while holding an equivalent number of shares of the underlying stock. It is also commonly referred to as a "buy-write" if the stock and options are purchased at the same time.
1) Buy in multiply of 100's- stock you want to buy/keep. So in this example: 100 shares x 39.51 = $3,951
2) Same time WRITE and out of the money option, which is above current price, so you get a credit back (which goes back to your account now).
Option which I am using for this example is: 18th May $43.00 Call
Each share, I received $2.45 back or $245.00 (net credit) for each 100 shares. Total amount of margin needed would be: $3706.00
FYI: So if price action is $37.06 on 18th of May, I will break even ($39.51 - $2.45 = $37.06)
Three scenario's:
1) Price goes above my write option price by May 18th of $43.00 and 100 shares gets sold. I actually, love this situation. Why? Because already received $245 (net credit, from selling your option. *So you are the CASINO or BANKER- which you want to be). It is safe. Also, stock went from current price of $39.51 to my option price of $43.00 ($3.49 per share x 100), giving me a profit total of $349.00 on shares + $245.00 credit = total profit is: $594.00. Then do it again.
2) Price goes below $37.06 on May 18th, you would be losing money, from your margin account. But you like stock, so write another new covered call.
NOTE: If you would like more information on doing covered calls, please follow YouTube channel: CorePositionTrading
The covered call involves writing a call option contract while holding an equivalent number of shares of the underlying stock. It is also commonly referred to as a "buy-write" if the stock and options are purchased at the same time.
1) Buy in multiply of 100's- stock you want to buy/keep. So in this example: 100 shares x 39.51 = $3,951
2) Same time WRITE and out of the money option, which is above current price, so you get a credit back (which goes back to your account now).
Option which I am using for this example is: 18th May $43.00 Call
Each share, I received $2.45 back or $245.00 (net credit) for each 100 shares. Total amount of margin needed would be: $3706.00
FYI: So if price action is $37.06 on 18th of May, I will break even ($39.51 - $2.45 = $37.06)
Three scenario's:
1) Price goes above my write option price by May 18th of $43.00 and 100 shares gets sold. I actually, love this situation. Why? Because already received $245 (net credit, from selling your option. *So you are the CASINO or BANKER- which you want to be). It is safe. Also, stock went from current price of $39.51 to my option price of $43.00 ($3.49 per share x 100), giving me a profit total of $349.00 on shares + $245.00 credit = total profit is: $594.00. Then do it again.
2) Price goes below $37.06 on May 18th, you would be losing money, from your margin account. But you like stock, so write another new covered call.
NOTE: If you would like more information on doing covered calls, please follow YouTube channel: CorePositionTrading
Comment:
Conservative investment idea, to make more profit then a bank would give you. This trade worked great, if GOAL is hit prior to expiry, then you roll up into a new write sell option or sell out your position, then find a new trade.