Passive Income Through Covered Calls |How to Trade Covered Calls

Selling covered calls is one way to generate consistent passive income within your account. In todays video, we go into detail on how to trade covered calls, why you may want to trade covered calls, and explain both the benefits and risks of trading covered calls. We will also do a few example trades within TD Ameritrade’s ThinkorSwim platform so you can get a bit of practice. Covered calls allow for consistent income and are a fairly low risk option selling strategy. However, it’s always important to keep in mind that it is a bullish trade. It allows shareholders to receive a consistent income and reduce risk. A covered call requires a minimum of 100 shares of the underlying stock. The seller, or writer of the covered call must then pick a price at which they would be comfortable selling their shares at. This price is known as the strike price. As the seller of the call you will receive a credit, or premium. This premium is yours to keep regardless of the outcome of the overall trade. Assuming the stock stays below the strike price, the option would expire worthless and you would keep the premium received as well as the 100 shares of stock. If the stock we’re to close above the strike price on expiration, the option would likely be exercised meaning you end up selling your shares at the agreed upon strike price. However, you would also keep the entire premium received. The closer to at the money you sell, the more premium you can expect to receive. The further out of the money the call is, the less premium you can expect to receive. Many options traders will pick their strike price based off of probabilities, whereas others may choose based off of technicals, or price targets. Time Stamps: 0:00 Intro 0:23 Covered Call Basics 0:40 When to Use 1:00 Risk Reduction 2:00 Covered call examples 7:17 Managing open positions 7:54 How to roll a covered call 11:50 Entering a covered call position 15:00 Risks 17:30 Benefits 18:00 Outro