Should You Write Covered Call Options?
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.