How to Sell Covered Calls for the Complete Beginner!
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- čas přidán 22. 08. 2024
- In this video we are talking about the complete covered calls process for the complete beginner options investor to sell covered calls. We will talk about what covered calls are, what exactly is a covered call, what is an options chain and everything in between, including a live look-in to my own dividend portfolio to sell a covered call.
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#DividendStocks #CoveredCalls
Trade smartly. Rewards are HUGE. I believe nothing beats professionalism and experience!
What's your strategy?
I’m quite new to the market
and tbh it’s overwhelming!
You’re right. I’ve been at it for one year now but still, I’m inconsistent lol.
I hit it off a long time ago (2020), couple of ups and downs but I’m consistently profitable for two years now following laid down patterns from an industry expert.
I’m opportune to have help from Christine Mila, a FINRA-certified pro trader. She engages in fx, stocks, and even the crypto market making me good gains on my investments buying and selling.
What’s her contact info?
A word of caution. It took about 6 months of learning to use covered calls effectively. Please, please start with small amounts of money until you learn the system well enough to feel comfortable. Current market conditions make using covered calls expecially challenging. Good luck !
This is good feedback John. Thank you for weighing in. 😎
Wat is minimum amount one can play with?
@@zohahs5276 100 shares = one contract,
What type of option would be more favorable in this current market (inflation)?
How is it going for you now? Do you recommend any other learning resources?
Finally!!! I’ve watched a dozen “beginner” videos that explain maybe 50% of the info needed to sell covered calls. And those vids talk abt the same 50%. I actually get it now thanks to this video. You have a gift for teaching this stuff - I’m genuinely grateful for your channel 🙌🏽
Thanks to following your channel for a few months im now making $150 bucks a week selling calls. building up.. thanks man!
AWESOME!! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
What stocks?
ok. I watched it 12 times. I understand about 60% of ot it. Huge jump of 58% understanding. People take classes for this so I'm proud of myself for getting a D- in comprehension after 3 hours. 👹
After watching many videos on the subject, this is the best one
Thank you for such a thorough, detailed and informative educational video. This is by far the best video I've seen so far. Really appreciate you showing us the steps by steps actions inside your account.
Excellent video on the actual steps. Thank you 11:27 example start.
You have no idea how helpful this is and im only half way through. Thumbs up, glad you have fidelity like me, its gonna make this so much easier.
I was doing CC's in robinhood w/ meme stocks, 100 shares of TLRY is cheap and its shorted intensely. I feel ready to graduate to fidelity and more sound strategies, thanks for this.
Glad to hear it! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍🏻
Hi Joe, thanks for the video. I've always been interested in learning more about options and I really appreciate your help. Maybe I'm just slow, but I think I'm going to need to watch your video a few more times for it to all sink in. I hope you'll do more of these. Maybe make them a little bit longer for us slower learners. It felt a bit rushed, but maybe that's just because I need to learn the basics.
Maybe I missed it, but why do you go with the 20 delta? Has your experience shown you that's the best risk/reward for most covered calls?
I love your videos! I so much want to learn covered calls and I've never done it before and I've never even owned a stock in my life. It seems so easy watching video after video on CZcams, but to really get answers to my questions: you are my Guy. Thank you!!!
The best “covered calls for dummies” video I watched so far! Although I’m not into trading myself, really like to know more about the mechanics of making a trade ! Continue the good works !
Excellent video. The one thing you might mention is don't be in love with your stock because sooner or later no matter the starting delta the market demons will suddenly push the stock price way above your strike and then you've go to let it go or spend the money to buy to close.
AND…don’t let that stock you own be Microsoft you bought two decades ago get called away with you sitting on a king’s ransom of capital gains.
@@flipsaug That sounds like the voice of experience 😀 BTDT 2
I like the way you explained it and walked us through the entire trade
THANK YOU for the feedback Scott! I appreciate it! 😎👍
Great introduction to covered calls!!!!
As a suggestion, on the next video for covered calls, you might want to address the "Greeks" in the analytics, especially the interplay of "Delta" and "Theta."
Also, a good discussion would be call options expiring on the Friday during the week when the underlying stock goes Ex-Dividend. The ability to track "extrinsic value" relative to the per share dividend can help in "dividend harvesting." Specifically, when the "extrinsic value" is less than the per share dividend before the ex-dividend date, there is an extremely high probability of being assigned. Even if the dividend is lost, hopefully the option premium compensates for the foregone dividend.
There should be some mention that under current U.S. Federal Income Tax Rules, gains on expired call options or gains on closing short call positions are ALWAYS treated as "Short Term Capital Gains" which are taxed at ordinary income rates.
Finally, it woukd be nice to point out that gains on closed short call positions or expirations within the year are effectively reductions in the basis of the initial stock position. This can be a factor in a "tax loss harvesting" strategy towards the end of the tax year.
All great points. I did think about including a discussion about the Greeks but decided it would be included in a follow-up video. 😎👍
@@AverageJoeInvestor The Greeks really help in evaluating. However, it is probably best to build upon previous lessons to show how things interact.
Again, GREAT LESSON!
Thank you always, Joe, for breaking down these concepts and making them easier to grasp. 🌹
My pleasure! THANK YOU for watching and for leaving your $0.02 in the comments! =)
Outstanding tutorial. You did a great job of clearly and rationally explaining this strategy. Well done! Thanks.
Great informative video, if the stock is declining why would you close it out to secure 90% profit instead of letting it simply close worthless and get the full 100%?
Good question! It's about taking risk off the table. IF you know there is NO RISK of being assigned because you are so low you could certainly choose to hold on until expiration. I know some investors that ALWAYS Buy to Close (BTC) at 75% but I prefer to use 90%. THANK YOU for watching Ernie and for leaving your $0.02 in the comments! 😎👍🏻
One HUGE reason is time. Let’s say the stock tanks and the option is now worth only 10 cents but has 20 days left. You could buy to close to secure your earnings way earlier than if you let it expire.
@@adventuresinbytes and then sell to open again! double the premiums in the same timeframe
Excellent explanation! Options have always made my brain explode. This was clear.
I understand the concept of covered calls but I just don’t know how to do it in my brokerage account. I found sell to open/buy to close are confusing and I am afraid that I chose the wrong direction! Your video is very clear. My TD. account charge me $15 per option trade. That is a lot!
Wow, that is expensive! I pay $0.69 to sell an option. Sounds like you need a new brokerage. THANK YOU for the feedback! 😎👍
Robinhood doesn't charge any fees and is easy to understand. I have TD Ameritrade as well, but only use Robinhood for selling covered calls.
2 comments 1) i think that it is worth mentionning that fidelity quotes prices based on the ask if you are short covered calls. So right after buying it always looks like you have lost money. 2) i dont like the standing order to buy back at 10%. You may be likely to only get that in the late hours of the last day where it is essentially worthless if out of the money.
Great video. Quick question, what's your strategy once the call expires and your shares weren't called away but the price of the shares has dropped quite a bit below your cost basis?
Man, over and over your channel is just the best source of information.
Are you gonna do a video on selling Cash Secured Puts to round this process out?
The title "for a beginner" brought me here even though I've been doing this for years I feel a nice run down is need again, thanks 👍
Joe, this is very interesting particularly the part about "buying to close" being entered immediately... do these often fill? So you're saying you get paid to "sell to open" and then get paid AGAIN when you buy to close? How often does this work? Thanks So I have an existing portfolio... is there a tool to help determine which positions are best for this strategy?
What is lowest open interest for a specific strike price you would sell at .
Fun fact my Name Ryld is from a favorite dungeons and dragons novels. I wanted to get into investing and found you talking about Qyld and Ryld! i was hooked. However i wont invest in either im actually going to buy SPY soon i guess thats the best move and buy it with just premium profits.
AWESOME! Yes, and you can choose to sell covered calls IF you want to when you get to 100 shares! 😎👍
@@AverageJoeInvestor yea cant wait for that sexy cover call from SPY omg that is a game changer..
Everything looks so easy in case the stock moves around the same price or goes up, but what will happen in case the price of the stock will go down 10 or more %...... It would be more interesting to see how to manage bad scenarios instead of always showing good scenarios.
Think of it as a way to increase the effective yield on a stock you want to own anyway. If the price goes down, you write another call. Three calls per quarter plus the dividend is good income. If you invest for the dividend income, you want the stock to go down so you can buy more shares when you reinvest the dividend. Obviously you don't want it to go to zero and you don't want it to cut the dividend, but other than that, you just keep writing calls and collecting dividends. Eventually it will get called and you will have to sell the stock, but then you either buy it again and keep going or you use the proceeds to buy a different stock and start writing calls on it.
I’d love to see a video on that SPY put. I know most people won’t have the capital for that but some of us do and are interested in content about SPY options.
Hopefully my brokerage will give me the ok and I can start covered calls and cash covered puts on SPY soon. My math is saying if I am successful 80% of the time it’ll be somewhere between +$1500-$3000 per month.
I'm very new to this so here's my example to have further clarification. Let's say I'm down $300 on 100 shares of X stock. If I want to make up for this loss, do I find a covered call with a bid price of $3.00? It shows about a delta of .43 if I want to make a covered call at $3.00 bid price. The strike price is exactly my original entry of buying 100 shares with a 15 day expiry. Thanks in advance, love the videos!
If you find a covered call for $3 after your stock declines by $3, then it would have a strike price that is lower than your cost basis. Therefore, if you sell the call for a $3 premium, then you would likely be forced to sell your shares for a $4 or $5 loss if the call expires in the money.
The best way to make up for that loss is to sell multiple contracts and hold onto your shares until you have at least broke even.
Yes, explained very well but still not sure about covered calls. I’ll watch several times, maybe it will click at some point. Thank you..
Thanks Joe, I started doing this with some of the growth stocks that were sitting in my IRA. Question, did you have a strategy for buying the 100 shares, like focusing on a single stock or did you just diversify your purchases until you accumulated your 100 shares.
GREAT QUESTION! For me specifically I had sufficient assets available so that I was able to focus on single stocks when I made the transition but I can see that IF you’re starting from a small portfolio size it would be wise to diversify your contributions/investments.
I just started this and I am using a training account not real money yet until I fully understand
Thank you Joe for your knowledge regarding to Call options!!
You bet Tim! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍
Good Video... I tuned in because I'm confused about closing my Covered call positions and the last few minutes really helped. thanks for uploading.
what happens when prices goes up or expires worthless? Whats the potential loss that can occur? Be nice to see these in example. Thanks
great video; helped me to understand a lot. What is missing (or may be it is me that did not get), is a tutorial about what NOT to do, or how to crash your account ( I guess not owning the stocks already, before selling the call, is one of them). thanks anyway!
Curious about timing of Selling to Open. Do you look for certain stock movements, or chart patterns, or anything else, or do you just wake up one day and place a Sell-to-Open order?
I need closure!!!! Well you do a follow up video?
Thanks, Joe! Awesome video that I’m going to have to rewatch a few times to soak it all in. I’ve been anxiously awaiting this video from you…
You’re welcome! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍
Just stumbled on your videos while searching TSLY. Great content and well laid out in in a digestible format. Keep up the great work!
Awesome video! I use fidelity and I’m waiting for prices to rise back to my cost basis for some CC. This is just what I needed.
AWESOME CARLOS! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍
Liked it but still confused lol I’ll watch it a few more times
Covered calls options strategy has been around for years but it is becoming so popular for income seekers who are hungry for higher yields in low interest rates environment. But be aware it is a form of derivatives so be careful. It is not risk free.
Great video. A question. So since you already have the shares in your account if the stock went up and hit the strike price of $93 the buyer could buy. So since you already have them at $88 then you would also profit even if it got called correct? Since you are covered you when either way as long as you are good at selling the stocks at the strike price? Great video. I think I finally get it but wanted to confirm this one part. Thank you
Excellent teaching. Is this correct that you can sell covered calls on ETF's and individual stocks, but not on mutual funds? For example, you can sell a covered call on VTI but not on VTSAX?
Thanks. This was really useful for my brokerage account where the chain looks just like shown here.
Very Good Uncle Joe- I will now recommend 5 more subscribers to this channel
Haha, THANK YOU for the feedback Dave! I appreciate it! 😎👍
Joe- really helpful info and fantastic step by step approach shown. Buying to close for a fe w cents rather than just letting the option expire is a solid way to eliminate the shenanigans that can occur around ootions expirations. Keep up the great work.
What "shenanigans" would happen around expiration? Unless its a long term trade...if the stock drops enough that the option has lost 95% of its value and you're near expiration why would you buy it back instead of just letting it expire and accumulate all of the profits?
Awesome video. Explained thoroughly, it was easy for me to understand. I'm hoping you have a video on selling puts as well.
Newbie question: if I want to sell a covered call do I have to buy 100 shares of the stock and set up the covered call in one transaction? Or say I have 100+ shares already in my account, can I tell the system (moomoo) "I have these shares sitting over here and want to use them to set up the covered call?
this? answers please
it's always been said that "if the price reaches the strike price".. but does it actually care? we sold the obligation. so cant the buyer buy the shares at any given point before expiration for the strike price? I meant its most likely he would wait for it to be higher.. but he could do it anytime, right?
So what would it mean if you put the limit price at $100? When i do it on etrade it wants to give me huge commissions. But does that mean I'm agreeing to buy the contract for 100 per share if it goes above my strike?
i feel like If I watched this 5 times and took notes it would be the best explanation but i have a hard time wrapping my head around this.
I'd be interested to know how long you sell the call for? At what point do you sell or do you wait until expiration?
Great job explaining this great income maker!
You bet! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍
What would happen if you didn't have the 100 shares in SBUX?
Would you consider an in the money call?
If so, how far in the money and what expiry?
Thanks
anyone know if there is a good online simulator that I can use to practice before I try to do covered calls and maybe cost myself some money doing something wrong.
Great video, awesome tutorial and thanks for showing on Fidelity platform - I use it so it was even better. Took notes, thank you!!!!
Thanks Joe; your video help this "Newbie" a lot.
Great video, thanks for breaking it down to the basics.
Hi Joe. When you buy back the option at .06 or 90% of the original bid/ask will that lower your cost basis of the original 100 shares? Thanks in advance. BTW love your videos!
No,it will not.
Thx a bunch bro Joe :)
Sam 🎵✌🏻
YOU BET SAM! THANK YOU for watching and for leaving your $0.02 in the comments! =)
Thanks for the video. Could you explain what the delta is? I use Etrade and the option view is very different. Just trying to understand what data I am looking for incase it is somewhere else.
The delta measures how much the the price of the option changes compared to the underlying stock price. The higher the delta the closer the option moves dollar for dollar with the stock. Usually deep ITM options move lock step with the stock.
you perfectly explained the process!
I have found that the option can be assigned anytime before the expiration. Not only on the day of expiration as shown here at 5:49. Am I right?
For example if you sold a covered call at the $40.00 strike price it could be called away from you @ 39.97 at expiration so it’s best to buy back your call.
Then buy back your shares for 39.96 and make an extra buck? LoL
Ty for explaining. Question: what is limit amount of 0.06 at the end?
Thanks for the video from Germany. Well, do i get that right that almost you prefer covered calls over cash secured puts finally? Is there a certain reason / point you see here as an advantage?
Hey! What would you say is the ideal time frame for covered calls? Just weekly or monthly?
If the option expired worthless… does the seller still keep the remaining shares or do you loose all stocks?
If you are the seller and your option contract expires worthless, you already have and keep the premium and your stocks are still yours.
Just amazing! Well explained finally understood thanks to your video!!
Great Lesson! I finally get it. Thanks
Very Very Helpful.Thank you. I would look at more Videos of yours.
Hi Joe, thanks for the video. I am confused you explain “out of the money” as market price above strike price. (8:00 mark) is this correct ?
Hello. If I don’t want to actually lose my stocks is there anyway to close my covered call sell so I don’t have to be forced to sell my 100 shares?
That was very helpful.
Someone explain to dummy old me, why would I buy back the call options at a lower price? Aren't I losing some of the premium ($57-52= $5 loss) or is it added to the premium ($57+$52=$109 total)? Why not just let it expire for the full premium.
Thank you for easy to understand video.
Can you force them to exercise the option? I sell a call for 5 bucks, my stock hits the strike price. Exercise the option, I keep my 5 bucks and move on.
You have probably said this in previous videos, but what platform do you use to show that option chain? (never mind, it was shown later in ther video... Fidelity) Thanks! These videos have been awesome and I'm looking at starting to sell covered calls soon.
AWESOME JUSTIN! Thanks for the feedback! 👍😎
@@AverageJoeInvestor as crazy as it is, I watched you first when you were doing stimulus videos because I was doing stimulus videos back then too and I wanted to see what others were doing. I always thought your stimulus videos were so honest and to the point, which as you know was so rare in those, that when I saw that you pivoted to investing I had to see what you had to say. You have taught me a bunch about investing with dividend stocks and now I have two friends of mine interested in selling covered calls because of your videos. Anyway man, love the videos, keep up the great work. -Justin
Can you do Altria one?
So if i get it right you sell a option for 0.63 dollars a share and then you want to have it so you buy it back at 0.06 dollars a share if i am correct?
Hey Average Joe are there any good dividend aristocrats with weekly’s to sell covered calls on for premium?
Do you ever get into wash sell issues?
Great question! Yes, this can occur if you are committed to getting right AFTER selling for a loss. If this occurs it is best to find a like-kind investment instead. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Why not just buy apple stocks at current price and sell a covered call in the money to collect the extrinsic value difference per share?
I still don’t understand why you would buy your own call option back. Isn’t someone else supposed to buy your covered call option after you sell to open? Anyone have any better videos explaining that
So what was the premium you collected?
$59.00 - $0.69 Commission/Fees = $58.31 -- THANK YOU for watching James and for leaving your $0.02 in the comments! 😎👍🏻
@@AverageJoeInvestor Thanks for responding. I just watched the video again and I saw the $58.31. It went by fast, so I musted have blinked and missed it. I just opened a Fidelity account w/ Tier 1 option. Every time I watch this video I see no down side to the "Selling a Covered Call." Unless you are the kind of person that thinks in terms, "IF ONLY I DID THIS." But that's emotional and not continues logical trading. I can't wait to start doing this with SABR and BAC. Happy Halloween.
Good video. I saw that you have a “High Yield Dividend Account” is that a ETF?
Hey Joe! Watched a few of your videos thanks for the content! One question on the income generated through selling the covered call premiums - do you know if there’s any limit to offsetting that income using any tax loss harvesting by selling other stocks at a loss position? Are the covered call premiums subject to the 3k max, or it’s considered a short term capital gain? Any insight would be awesome thanks!
Yes yes…😂 thanks you for this video
You bet! THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍
More please!
Thanks for the feedback Zach! THANK YOU for watching and for leaving your $0.02 in the comments! =)
Excellent video
I used to watch you a lot before you started all this covered call stuff.
Hi Jim, I appreciate the feedback. I will be layering in A LOT more dividend stock and dividend ETF content moving forward. THANK YOU for watching and for leaving your $0.02 in the comments! 😎👍
Still confused.
Starbucks hits $93, okay what happens?
Thanks bro!!
Very well done
So if you buy a stock at $100 and it drops to $90 within a few days - what's the play?
Keep premium
I don't get why you setup a buy to close. Why not just let the option expire?
this is also what i wondered too! i thought we were expecting to just let it expire since we already collected premium. but if im not mistaken, i think he buys to close to purchase his own options $SBUX to get it for cheaper (assuming that prices drop in this case) so that he can still gain profits instead of letting it expire worthless. this is my guess.
From other comments, the reason is time and risk. If you close early when the call contract is doing terrible, you can cancel it for cheap and open another trade right after, instead of waiting for it to expire. Also, you get rid of the risk of the buyer exercising it for whatever reason that may be