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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