Should You Write Covered Call Options?

The motivation to earn profits from stocks has led many investors to write covered calls. Covered call options enable investors and traders to collect premiums in exchange for potential profits on stocks. In this arrangement, the stockholder is paid for the call option that may be exercised by the buyer after an expiration period. Buyers often find call options online by using a covered call screener. There are several instances when an investor will find writing call options a practical investment approach.

Writing covered calls is best done when the market is flat or when the prices of stocks are not moving. Investors who write covered calls do so when they anticipate that the value of their stocks will not go rise tremendously in the near future. Instead of just holding on to their stocks and risking little to no earnings, these cunning investors write call options and earn extra money from the premiums they collect from the call option buyers. The call option writers also think that the value of the stocks they have will not increase significantly, thus the call option buyers won’t be interested at all in exercising the call option once the expiration date sets in.

Covered call writing is generally practiced by stockholders when the markets are flat, as there is little chance that stock prices will skyrocket. However, covered call writing can also produce the best premiums when the prices of stocks are volatile, as buyers are looking to purchase stocks that are projected to increase in value in the subsequent days.

Some investors are able to earn a constant flow of income just by writing covered calls. These investors are able to earn extra through the premiums they collect from covered call buyers and they are able to keep their shares of stocks when the call buyers do not proceed with the option if the prices of the stocks remain flat or low. The only problem that investors have when writing covered calls is the risk that they are giving away their rights to shares of stocks that may eventually become valuable in the future. This is particularly true when the prices of the stocks that were entered into covered calls and then called away suddenly rise.

Covered call options may be a low-risk investment strategy for most investors, but there are still inherent downsides to it. Traders who are looking to engage in this type of investment should be aided by a quality covered call screener to help them look for the best deal in the market. Barchart is home to one of the best screeners available today. Visit barchart.com to sign up for a free trial.

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The Benefits Associated with the Use of a Covered Call Screener

Investing in the equity market is not a walk in the park. Even the most experienced traders are susceptible to huge losses when the investment strategies they implement blow up in their faces. The volatile prices of stocks in the stock market can bring a stockholder success one day and terrible losses the next trading day. Traders create covered call options since they want to ensure their portfolios are not affected by decreases in stock prices. By entering a covered call contract, a trader earns a premium by selling his stock for a strike price and the trader still has a chance to keep the stock if the price of the stock drops further than the strike price after an agreed date lapses.

Thousands of stock traders enter into this type of agreement, which makes covered calls a very lucrative investment strategy with less risks. However, the sheer number of stocks that are entered into covered contracts makes it quite impossible to track down every stock in the equity markets. Traders who are shopping for stocks that are up for covered contracts will find it difficult to find stocks that are suited to their investment strategies – unless they use a call screener.

With a call screener, traders can easily sort through the covered stocks up for grabs in the market. They can filter data according to US equity symbols and sort information according to categories like weekly and monthly. They can also calculate how much their profits would be if the covered stock stays the same in price or if the price goes up. Similarly, users of call screeners can filter data by market capitalization, moneyness, and even upcoming earnings reports, which they can refer to when increasing their protection against falling stock prices.

Call screeners are premium products offered by websites like Barchart. These tools require users to subscribe and pay minimal monthly fees in order to enjoy the benefits and privileges offered by the screener. Considering that an investor’s earnings potential is at stake, subscribing to a call screener is certainly worth the money. There are several covered call screeners available on the Internet, such as the Barchart covered call screener. Aside from the aforementioned features of the screener, Barchart’s screener allows users to search for calls on the top traded stocks in the market. Users can also write covered call options with this service.  Interested subscribers should visit barchart.com for more information.

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The Various Strategies Involved in Covered Call Writing

A covered call is an investment strategy that many traders opt for in order to protect themselves against sudden changes in security prices. With this trading option, the person who holds a security, such as a stock, sells the rights to the security at a strike price set in the future in exchange for a premium. When the price of the security does not become lower than the strike price, the call writer not only gets to keep the premium but also the rights to the equity. Traders and investors who write covered calls often use a covered call screener to enable them to more easily find covered calls that are suited to their investment strategies.

Depending on their goals, there are different strategies that traders employ for covered calls.  There is the supplement return strategy wherein the call writer sells covered calls primarily for the extra profits they can derive from the premiums. The call writer believes and expects that the price of the security will continue to rise but not fall. The call writer expects that he or she will hold onto the security.

Another motivation for call writers to write calls is to protect their portfolio against losses. This strategy is often employed after a rise in the value of the security. By selling their securities through covered calls, traders can protect their portfolio against sudden and unforeseen decreases in prices of securities.

Traders who engage in covered calls also speculate about the prices of securities they are selling. Traders can double their income by selling covered calls successively. It is likely that traders can double their profits if they sell covered calls that have a 10% return in a month. These traders usually consult call screeners in order to find calls that have the highest returns.

Like any other investment strategy, covered calls have risks. Though it is considered to be a conservative strategy, calls can also make a trader or call writer lose money if the security price drops significantly. Calls for highly volatile securities are riskier compared to writing calls for securities with low volatility.

Writing a covered call can be a great option for traders who want to maximize their profits and spare their portfolios from losses brought about by sudden drops in the value of securities. Using a covered call screener  makes it much easier for traders to find, buy, and write covered calls that are appropriate to their investment strategies. Sign up for a complimentary trial for Barchart’s screener at barchart.com.

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The Positives and Pitfalls of Covered Call Writing

The urge to earn more money can motivate investors to opt for covered call writing. By writing a call option for shares of a stock he owns, an investor is able to earn extra money in exchange for the option of another trader to buy the stocks at a pre-agreed price (also called the strike price). The buyer can exercise the call option once the expiration date sets in. Buyers of covered calls usually find stocks that have call options by using a covered call screener. Usually, these buyers will exercise the call option if the value of the stock with a call option becomes higher than the strike price. There are pros and cons of call options that any investor should be aware of before proceeding with this trading opportunity.

The main advantage of writing a call option is that it provides extra income to any investor. Individuals with shares of stocks may feel that the prices of their stocks won’t increase significantly in the future. Instead of just keeping their stocks and earning nothing, investors write call options so that they can earn additional income. Aside from earning extra profits, investors still have the chance to retain their rights to their stocks. This happens when the call option buyer decides not to push through with the purchase of the stock because the stock value has remained flat or it has become lower than the strike price.

However, a call option can backfire on investors. After all, there is no certainty that the price of a stock will remain flat or below the strike price set by the call option writer. The call option writer is basically giving up on hope that the value of the stocks he holds will skyrocket in the future. When the stock prices increase on or before the expiration date of the call option, the call option writer stands to lose the shares of stocks as the call option buyer will naturally exercise the call option. Likewise, the call option writer will lose profits had he not wrote a call option on the shares of stocks he once owned.

Though a covered call option is generally thought of as a conservative investment strategy, it still has its risks as discussed above. Any investor who is thinking of writing a call option for shares of stocks he owns should carefully study his options before doing so. There are many traders who use a covered call screener to find stocks with call options and these traders make calculated risks in buying call options. Traders may increase their profits by working with a call screener, such as the one available at barchart.com. This screener is available for a trial period only at Barchart.

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