Maximum gain occurs if you get assigned and your stock is called away.However, because the system does not realize this is a covered call until it executes, these calculations do not include the sale of 100 shares of XYZ if you get assigned. The trading platform automatically calculates your maximum gain, break even and maximum loss for this sale of one call option. Unless the market price moves away from you immediately, this will likely result in an immediate execution, and eliminate the need to wait for the stock price to change in order to get executed. If you want to change your limit price, you can use the up and down arrows, but for your first trade, consider just entering a limit price that is equal to the bid. The highest price that XYZ has reached over this time was around $84.00 several times last year.The stock has traded within about a 20-point price range over the past 12 months.You only want to sell 100 shares if the stock's price gets back near its peak. In making this decision, analyze a one-year price chart.įor example, assume it’s Maand you've chosen stock XYZ. Once you've selected your position, you’ll need to determine a price at which you would be willing to sell just 100 shares of your stock anytime within the next 30 to 60 days. In our example below, we’ll be assuming that you sold only one covered call. You can sell one covered call for every 100 shares of the stock you own.
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You would be willing to sell the stock at the strike price at any time through the expiration date.The stock does not pay dividends (or pays very small dividends, or you’re not counting on receiving dividends).
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The stock trades at a higher price now than the original purchase price.
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Select a stock position in your account with the following criteria: How do you get started? After your Schwab account is approved for options trading, follow the steps below. When it’s structured properly, both time and price can work in your favor.Īdditionally, a covered call is generally considered a relatively low-risk strategy, and approval to trade covered calls can usually be granted to investors that have never traded options before. Why a covered call?Ī covered call is when you sell someone else the right to purchase a stock that you already own (hence “covered”), at a specified price (strike price), by a certain date (expiration date). Instead, I recommend considering a covered call for your first options trade. However, the results are often disappointing because both time and price can work against you. This gives you the right to buy a specified stock (or other security) at any time until the contact expires. When trading options for the first time, investors sometimes select long call options.
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Almost always, about half to three-quarters have never traded an option before. When I teach options seminars, I often ask how many participants are brand-new to options. View resources from The Charles Schwab Corporation.