Covered Call Examples
A lot of people are interested in getting into covered calls, but they don’t know quite how to go about it. In this video, I’m going to show you covered call examples so that you can see how it’s done and see how easy it is to start making cash flow by using covered calls.
Transcript:
A lot of people are interested in getting into covered calls, but they don’t know quite how to go about it. In this video, I’m going to show you covered call examples. I might even show you two covered call examples, so that you can see how it’s done and see how easy it is to start making cash flow by using covered calls stay tuned. Okay, so this is my mosaic trading screen, I’m on a program called Interactive Brokers. And they’re a great, great firm, one of the platforms that I use, we also use TD Ameritrade Thinkorswim platform is great, Schwab is great, there’s a lot of different platforms that are good, they all pretty much do the same thing. Now, I just like the way I have mine laid out. So I’m going to show you how to buy a covered call just just kind of do a covered call example. Why don’t we do it on Roku. So Roku is up 5% for the day, let’s take a look at Roku. And you can see it’s at 236 25 Up $11 for the day. And it’s got some pretty good volatility, it’s got an implied volatility of 57%. So I’m going to bring in my options chain. Okay, here’s my options chain, and I’m showing the options out 22 days. So this is about a three week long trade. And we can see that if we go at the money here, we will be picking up, you know, the 235 the stock is at 236. So it’s right at the money. And we’re going to be picking up about $13.70, maybe a little bit more somewhere in between the bid and the ask. So let’s first of all, go ahead and buy a Roku. So I’m going to right mouse click on Roku, I’m going to buy let’s buy 300 shares of Roku. We’re going to go at the market or we’re going to go at the limit at the market basically the market price we could just do a market price to that’s probably easier. That way we don’t have to mess around if the mark if it starts to move on us. We’re not going to quibble about pennies here. But what it partially filled. And now you can see we have the 100 shares of Roku in the account right there. Now we have our option chain. And you can see we can go at the money. And we get you know, at the money, the stock is right now at 236 32 at the money is 235. And so we could easily just go ahead and sell those at the money. They expire in 22 days, and we pick up $13.70 of premium. Right. But maybe we think that we want to be a little safer, right? Maybe the stock could drop 10. But I mean, it’s up 11 Today, maybe it drops 10. Because we have a little market correction. So why don’t we pick up a little cushion, and we go down to the 225. Now the 225 are going to give us $19.20 of cushion. So that one looks to me like the one we want to do. So let’s go ahead and sell we’re going to sell to open. So we bought 300 shares of Roku, so we’re going to go ahead and sell three contracts. Remember, our contract is 100 chairs, basically. So we’re going to do three contracts, that’s 300 chairs. And we’re going to sell right here at the bid. Because that’s the price we sell at right we don’t get the higher price we sell. It’s the wholesale price, right. So we’re going to take that, we’re going to sell that. And now we’re just going to reduce these. And now you can see in the account, I have 300 shares of Roku. And I have three contracts against it for the 225 calls, right. And so those should move kind of in tandem with each other. Now, the way this looks is if the stock stays above 225. And remember, it’s at 236 today, but stays above 225. We basically make that you know $7 In time premium for holding it three weeks, right? Pretty good. So all you do is you click on the buy, you buy it and then you click on the three contracts on the option chain, and you sell it and you’re done. And now you’re in a position that’s a covered call on Roku. Do you get that? Let me show you another one. Let’s say that we want to add some Alibaba that one’s moving today. But Alibaba is something that I used to make a lot of money on. So I’m just going to right click on it. I’m going to buy just going to do 200 shares Okay, 200 shares we’re going to go at the limit. It’s go at the market. We’re gonna submit it’s your seats $24,000 trade, transmit partially filled, now we’re filled. It starting to drop a little bit, not too much, but it’s about one 2382. So we’re just going to right click on that, it’s going to bring up the January 21, they go out 22 days, and I’m going to go, I like to go in the money, I never want to go out of the money, when I’m selling calls, I just, this is just the way I trade. I’m a conservative trader. So I’m going to go to the 123s, and I’m going to pick up about $7.15. of cushion, right, a premium. So we’re going to click sell two contracts at 720 on a film, and we have a fill. So now if we take a look, we’ve got 200 shares of Alibaba, and we have two contracts short. So that’s the writing of the covered call, just trying to give you a covered call example here, of Alibaba right there. And now we are covered. And as long as the stock stays above 123, we get the maximum amount from the sale. So that is those are two covered call examples for you to look at. We did a covered call example in Roku. And we did a covered call example in Ali Baba. So hope that helps you. So when you think pretty easy, right? I mean, you just basically click the mouse, it’s not really hard work. It’s the question is having a strategy around what happens after you get into a covered call, right? It’s not just any stock that you should use to do cover calls, it got to be the right stock, it’s got to be at the right spot on the chart. And it’s got to be in the right market. And then you’ve got to manage the whole situation, right, you can’t just pick any stock. I know so many people that pick cheap stocks, or stocks that seem like they have a lot of money that they can make an income on it. And then the stock, you know goes down a lot, they get crushed and covered calls. That’s why sometimes covered calls gets a bad reputation, because people just do the wrong thing. There’s a way to do it. And there’s a way to have a system around it. And we have a strategy for that. So if you’re interested in getting involved in doing covered calls, and you want to do them right, we have a program called the cash flow machine. And there’s probably a link at the bottom of this video or something, you can click at the bottom to get involved with a certain list to find out some more. But if you’re going to do covered calls, make sure you know what you’re doing, and have a strategy around what happens after you get into stock. Thanks for watching. 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