Options have become a popular investment in recent years. You can make more money than stock if you did it the right way. There are many options strategy you can use. The basic one is call option and put option. Option is a right to sell or buy an asset at a specific price or what is referred to as strike price.
Besides basic strategy there are likewise many advanced strategy which is created using several basic options. One of that advance strategy is covered call. This is strategy when you believe that the stock is bullish but won’t move a great deal in short term. In that short term you wish to make money by selling call option, because when you sell or write option you’ll receive premiums.
This strategy has limited profit and it will happen when the stock price is at or above call option strike price. Covered call can also bring a great deal of loss if the stock drops to 0 but your loss will be offset by the premium you receive when writing call option.
Do you have a stock position that you have owned for a long time? Maybe it’s a position that you inherited, or one that was given to you years ago. Maybe it is company stock that you methodically accumulated as an employee. Many investors hold long-term positions that have grown tremendously over time. In most cases, it doesn’t make sense to sell this stock because of the tax implications — not to mention the aversion to selling an asset that has …
Stock XYZ price is above initial purchase price but below strike price at $110. Total profit from stock and $10 premium will be $20.
Broadening this discussion
Stock XYZ price is above strike price at $130. Your total profit will be the same like when it is at strike price which is $30.
You need to find out more about options trading from books and internet. Another important thing you should remember is trading with virtual trading first then real trading. It is better to lose your money virtually at first than losing your real money.