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What are covered calls? (for beginners)

Imagine you own shares in a company - let's say 100 shares in Apple. You believe that the share price will tend to move sideways in the near future. Instead of simply holding on, you can generate extra income with covered calls.

This is how it works:

- You own the shares (hence "covered").

- You sell a call option on these shares. This gives someone else the right to buy your shares at a certain price (strike) up to a certain date.

- You receive a premium for this sale - and that is your income.

What can happen?

1. the price remains below the strike:

=> Nobody exercises the option, you keep your shares and the premium. Win!

2. price rises above the strike:

=> Your shares are "taken", you have to sell them at the strike. You receive less than the current market price, but you keep the premium.

What is this good for?

- Additional income in sideways markets.

- Some risk protection through the premium.

The risks?

- Limited profit potential (because you have to sell the shares if they rise sharply).

- If the share falls sharply, the premium only protects you a little - you still bear the price risk.

In short: covered calls are like rental income for your shares - you give up profits but collect regular premiums (dividends, etc.).

$SPYI
$QQQI
$QYLE (-0,06 %)
$AAPL (-0,46 %)
$MSFT (-0,38 %)
$AMZN (-0,68 %)
$GOOGL (-0,27 %)
$RHM (-3,01 %)
$NVDA (-0,75 %)
$NOVO B (-1,75 %)
$O (-0,09 %)
$NKE (-0,1 %)
$TSLA (-1,12 %)

5 Commentaires

GeldGenie@GeldGenie

Even though I find this too superficial and not conclusive for beginners.

I'll do something in a few days 😉😏

I understand tagging shares for "visibility" - but that's more the point of # ...

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Ph1l1pp@Ph1l1pp

@GeldGenie I don't even understand the tagging on shares, the post should stand out because of the quality and not because you have tagged a particularly large number of shares

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Rendite Rudin@RenditeRudin

@GeldGenie Thanks for the Input👍🏼 I will take this into consideration

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Harald@Madhatter5566

Basically a great tool, but in my opinion the question is how often you have a sideways market? Most of the time it goes up (you give up part of the return with covered calls) and then it drops very sharply in the short term (then you still have a price loss and only keep the premium). And even for a long-term sideways market: you also have to find someone to buy the covered calls, so your premium is already heavily priced into the market.

Otherwise, no, there are no dividends. That is the only advantage. It's actually money that doesn't come from the share price or the company.

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Rendite Rudin@RenditeRudin

@Madhatter5566 yes my mistake, it is often priced as a "dividend", the Americans always talk about dividends on X but yes it is not actually a dividend. Thanks for your input!

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