Covered Call Options Strategy: A Beginner's Guide (2024)

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Learn the essential pieces of the covered call options strategy in my newest tutorial!

The covered call strategy is super popular because it's an easy way for long-term stock investors to boost potential returns while waiting to sell shares at a higher price, or reduce loss potential on the shares.

A covered call consists of buying 100 shares and shorting a call option. If the stock is below the call's strike price at expiration, the trader makes a 100% profit on the short call as it expires worthless. The trader can sell a new call in the next expiration cycle to collect more premium and keep the strategy going.

If the stock is above the call's strike price at expiration and the trader does nothing, the trader will get assigned on the short call and sell their 100 shares at the call's strike price. The trade realizes the max profit potential, but the shares are lost.

In this video, you'll learn the essentials of this popular options trading strategy with historical trade examples visualized with real option data.

I also do a live trading session where I enter a covered call position on tastyworks, wait a few days, and exit the position before expiration. I explain why the position made/lost money.

0:00 Introduction
0:28 What is a Covered Call?
1:44 Basic Covered Call Example & Risk Graph
3:30 Historical Trade Example #1
4:31 Max Profit Calculations (Two Approaches)
6:15 Historical Trade Example #2
7:48 Historical Trade Example #3
9:31 What Happens to Covered Calls at Expiration?
10:11 Securing Partial Profits on the Short Call
10:52 Buying Back the Short Call for a Loss
11:56 What Happens After Expiration?
13:44 How to Choose a Call to Sell?
16:22 LIVE Covered Call Trading on tastyworks: Entry & Exit
28:11 Best Time to Enter a CC?
29:29 Can I Trade a CC With Less Money?
30:00 Do I Have to Hold to Expiration?
30:43 How to Avoid Short Call Assignment?

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