Why Sell A Covered Call?

• You own stock that has risen in price nicely

• You are not quite ready to sell!

• BUT.....

• You are worried your stock price might go down

• IF...

• Your stock is WAY Overvalued

• Or, there has been a significant negative change in the fundamentals

• JUST...

• Sell The Stock

• Don't sell a Covered Call

When to Sell A Covered Call-Best Premiums

• The stock has moved up for a while

• The stock is up for the day

• The market is up for the day

• Volatility is up

• "Bearish" Technical indicators

How to Decide on a Call Option

• Need 100 shares of the stock

• Determine the price you would be comfortable selling your stock at-this will be your minimum strike price

• Consider options with attractive premiums for the front(first available) month expiration

• Sell 1 contract for each 100 shares

Closing Your Position - 3 Possibilities

1. Option Expires Worthless

• Option open until expiration date
• At expiration, underlying stock closes below the strike
• You retain your stock
• You keep all the premium you collected
• Taxable account - short term capital gain

2. Buy back the Option before expiration

• Prior to the expiration date, buy back option to close position
• Gain if you buy it back for less than you originally sold it for
• Loss if you buy it back for more than you originally sold it for
• Released from obligation to sell stock
• Taxable account - short term capital gain (or loss)



3. Option is exercised

• Option open until expiration date
• Underlying stock closes above the strike price
• Keep all the premium you collected
• Stock is sold at strike price of the option
• “Sales basis” used to determine your taxable gain or loss = strike plus the premium