How to Sell Stocks Using Covered Call Options
Options -- calls and puts -- are useful tools for investors and traders at all levels. A call is a contract that allows the holder to buy a particular security at a particular price. The call writer, or seller, is obligated to sell the security if the holder chooses to execute the contract. When the call writer holds the security in her portfolio, the call is a "covered call." Writing covered calls can be a good strategy for those who don't mind selling a security and want to make a little extra money on their investment.
- Difficulty:
- Moderate
Instructions
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1
Choose an asset to sell. A good candidate is a security that is likely to increase in price and one you don't mind selling. Calls are sold in lots of 100 shares, so you also must have a multiple of 100 shares to write the call.
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2
Contact your brokerage firm to arrange the sale. Options contracts are standardized, so your investment representative or online brokerage firm will have a list of call contracts you can write.
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3
Select a strike price and expiration. If the call is exercised, or assigned to you, the strike price is the sale price. It must be higher than the current price of the stock. The expiration is the last day the option is good. These are usually expressed by month, as all options expire on the third Friday of the month.
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4
Write the call, and collect the premium. The premium is yours to keep, whether or not the call is assigned. Note that most brokerage firms charge a commission and fees for call sales.
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5
Sell your shares if the call is assigned, and collect the proceeds. Depending on your brokerage firm, this sale may also qualify for commissions and fees.
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1
Tips & Warnings
Covered calls can be a good way to sell shares when you're not in a hurry and willing to deal with a bit of additional work and the risk that the call may not be exercised.
Don't forget to factor fees, commissions and tax into any potential gain calculation as you decide how to write your calls as these things can dramatically affect your profit.
