Time for a Lesson on Covered Call Strategies That Work

I learned how to trade in the stock market over 20 years ago. The first strategy I learned was covered call writing. I was attracted to covered call writing over day trading, because of the following:

1. Covered call writing produces guaranteed stock market income. 

2. Covered calls made money even when my favorite stock declined. 

3. Covered call income, known as premiums, was predictable. 

Early on in my trading career, I quickly learned that Wall Street institutions, like banks, hedge funds, and college endowments use a variety of covered call writing strategies as part of their trading practices to produce millions.

Once I became a stock market teacher, I discovered most of my Wealthy Investor students desired more monthly residual income from their stock market portfolios. So to help them increase their financial success, I started teaching the basics of covered call writing. The results were amazing. Many of my students were able to achieve $500 to $1,500 each month from selling covered calls. 

Let’s Take a Look at How Covered Calls Produce Income

Notice from the five year chart above, that T-Mobile stock (TMUS) is upward trending.

Using the Wealthy Investor approach to covered call writing, here is one thing I’d like you to remember: We only sell covered calls on stocks that are upward trending.

Let’s say a trader owns 1000 shares of T-Mobile stock (TMUS) at $66 per share and is willing to sell those shares for a profit, that trader can sell the right to a second party to purchase their TMUS shares at $66.50 per share. In Wall Street terms, the trader would be selling the right, but not the obligation, to a second party to buy their T-Mobile shares at the $66.50.

Strike Price

The $66.50 that the shares would be sold at, is known as the strike price.

Income and Premium

The income from selling the rights is referred to as the premium. The premium for selling a thirty-day call option in this case, is two dollars per share.

That means the trader selling selling the rights to the shares, would take in a guaranteed $2,000. See the example below.

1,000 TMUS shares optioned at $2 = $2,000 income

So Here’s a Question For You

Could you use an extra $2,000 in your trading account? If so, then covered call writing is probably for you.

The key to being a great covered call writer is knowing which stocks to hold for selling covered calls and which to invest in for the long term.

Over the last five years, covered call writing as a strategy, has growth in popularity. Today, no matter what your background, you can profit from covered call writing if you learn to use it as a strategy.  All you need is a financial education to be on your way!

Covered Call Strategies for Stocks that Rise or Decline in the Short Term 

For example, if you thought that a stock was going higher, and you wanted to generate income, you would sell an out-of-the money covered call (OTM).

Or if you thought your favorite stock could decline in the short term, you could sell an in-the-money covered call (ITM).

Today at my Wealthy Investor live events or online, I love teaching covered call writing as a core strategy. Covered call writing helps all of my students generate guaranteed monthly income in their primary trading accounts, as well as their roth and traditional IRAs. You can watch multiple videos on how to sell covered calls at WITradeSchool.com. 

If you want to follow my weekly stock trades and have me answer your questions click here to sign up for WITradeSchool.com.

* DISCLAIMER:  Stocks and options trading involves risk and is not suitable for every investor. The stocks and options prices vary and, as a result, clients may lose or gain from their original investment.  Stock illustrations posted on TheWealthlyInvestor.net web site are for illustration purposes only. Your personal results as a trader/investor may vary from the WI students listed above.