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Chapter 5. Two Popular Strategies and Ho... > The Covered Call (Covered Write or B...

The Covered Call (Covered Write or Buy Write)

Question:When we buy the stock, we want to get some income back while we’re holding it over the medium term—is that possible?
Answer:Yes. Sell a call option as well. The combination of buying the stock and selling a call is known as a Covered Call.
Question:Which exercise price and expiration date for the call should we choose for this strategy?
Answer:In general, you should sell call options one or two strike prices Out of the Money (OTM) (that is, higher than the price you paid for the stock), and with approximately one month left to expiration.

With respect to US stocks, remember that to be covered, you’ll need to buy 100 shares for every call option you sell. And remember that every US stock options contract represents 100 shares.


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