All content in the ZeccoShare community is generated by its members and does not contain advice or recommendations on behalf of Zecco Holdings or Zecco Trading. More>>
Content Name: CommunityDisclaimerShortLeftNav
Preview Revision #:
Active Revision #:
Edit Content
Zecco.com » General Investing » Options Trading » Can someone walk me through writing...
Last post 05-12-2008, 9:49 PM by mgrass. 2 replies.
Previous   Next
Content Name: ForumThreadInternal
Preview Revision #:
Active Revision #:
Edit Content
  •  05-06-2008, 2:11 PM 28566

    Can someone walk me through writing some covered Calls?

    Reply Quote
    I'm pretty sure I've got permission to write covered calls. I'd like to write some calls on some of my positions in the IRA. Got a couple questions.

    a) Is there a minimum number of contracts I have to write (like 100?)
    b) How do I do it? Could someone just walk me through? I'd like to raise a little extra cash by writing calls on all my long positions if possible.
  •  05-06-2008, 5:45 PM 28583 in reply to 28566

    Re: Can someone walk me through writing some covered Calls?

    Reply Quote
    A very short but good book on this is "The Short Book on Options".   It's mostly about covered calls.

    You need at least 100 shares of stock for each call you write.  You can write as few as 1 contract if you have enough shares of the stock.   I would strongly suggest doing some reading on the subject before trading CCs.

    -Sean
  •  05-12-2008, 9:49 PM 28975 in reply to 28566

    Re: Can someone walk me through writing some covered Calls?

    Reply Quote
    As long as you signed up to have the ability to trade options, you can write covered calls since all you need is the most basic option permission, level 1. 

    a) Each option represents 100 shares of the underlying stock.  So the minimum number of contracts you could write for a covered call would be 1, which would mean that you must be long (own) 100 shares of the underlying stock.   So for every 100 shares of the stock you own, you can write 1 covered call.

    b) Basically, if you already own long positions then you can write a call on those positions, at a ratio of 1 contract to each 100 shares of your long position. 

    Take this for an example,
    If you are already long 200 shares of AAPL purchased at $180,
    You can write or 'sell-to-open' a maximum of 2 call contracts, for example at a strike price of $190 with a $2.22 premium.

    As long as your shares of AAPL do not exceed the strike price of $190 by the options expiration date, you will receive a (2.22*100) $222 premium for each contract, or $444 total, in addition to your gains/losses on your long position.

    Covered Calls will limit your upside potential though,
    If AAPL does exceed $190, say it went to $210.  Then when the options you sold get exercised, you will have to sell all 200 shares (100 for each contract) for a price of $190.  You would receive your profit of $10 a share for each share of AAPL and still receive you're premium of $444.  (10*200) $2000+$444=
    $2,444 profit.  But if you had just held onto the long position, you would had profited (20*200)=$4,000

    Just a couple of notes though, I didn't factor in early exercising of the options (which rarely happens anyway) or fees (which make selling far out of the money options pretty useless)

    Also note that if you do not have the ability to write naked options on your account, you will not be able to sell your underlying long position until the options you write expire or you 'buy-to-close' the same number of call contracts that you had written with the same strike price

    I use covered calls relatively frequently to get a little extra cash each month, they are especially useful for  long positions that are not very volatile.  

    Hope this helps,
    -mgrass
     

Content Name: StandardBottom
Preview Revision #:
Active Revision #:
Edit Content
 


ZeccoShare is currently in Beta mode. In case you wish to provide feedback, please post it in the ZeccoShare Forum.

ZeccoShare provides a confined and secured environment. The information you share (e.g. profile, holdings, trades, performance) is only displayed to other Zecco members. Guest (i.e. not signed in) are not able to see any individual member information. Guests will only be able to see anonymous, aggregated community data.

Zecco members marked with a ‘Zecco Associate’ medal are employees of Zecco.com. They are not registered representatives of any broker/dealer, and are not registered with any national securities exchange. All information displayed and all posts made by these users are their personal information and opinion, and not the opinion or information of Zecco.com. Zecco.com is not a broker/dealer, has no access to material non-public information about publicly traded companies, and does not make any recommendations regarding the purchase or sale of any security.


All content in the ZeccoShare community is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Zecco Holdings or its employees. Your use of the ZeccoShare Community is conditioned to your acceptance of all Disclosures and Terms of Service.
Close [X]
Content Name: CommunityDisclaimerLong
Preview Revision #:
Active Revision #:
Edit Content

Terms of Service - Privacy Policy


Zecco.com is a financial portal of Zecco Holdings, Inc., which also provides access to Zecco Trading, Inc.’s trading service. Zecco Holdings, inc. is not a securities broker/dealer. All securities and investments are offered to self-directed investors by Zecco Trading, Inc. Member FINRA /SIPC. More information is located on the disclosures page.

At Zecco Trading, you can make up to 10 free stock trades in any one month that you maintain a $2500 minimum account net equity. After that, you pay only $4.50 per stock trade. Options trades are $4.50 plus $.50 per contract. Only the first account of any account type is eligible for the Zecco Trading, Free Trading program. Any multiple accounts of the same type with the same registration are not eligible for the free trading program. Free Trading Program is only available through Zecco.com. $0 minimum to open cash and IRA accounts.

* Margin accounts require a $2,000 minimum balance for opening and trading on margin. Margin trading involves risks and is not suitable for all accounts.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please read Spread Trading Disclosure.

Investors should consider the investment objectives, risks, and charges and expenses of a mutual fund or ETF carefully before investing. A mutual fund/ETF's prospectus contains this and other information, and should be read carefully before investing.

System response and access times may vary due to market conditions, system performance, and other factors.

The content of Zecco Holdings, Inc.’s and Zecco Trading, Inc.’s websites, including research, tools and securities symbols, is for educational and informational purposes and should not be intended as a recommendation or solicitation to engage in any particular securities transaction or investment strategy. You alone are responsible for evaluating the benefits and risks associated with the use of our services or products and to decide which securities and strategies better suit your financial situation and goals, risk profile, etc. The projections regarding the probability of investment outcomes are hypothetical and not guaranteed for accuracy or completeness. They do not reflect actual investment outcomes and are not guarantees of future results. Tools’ calculations do not take into consideration commissions, margin interest and other costs that may impact investment outcomes. All investments involve risk. Losses may exceed the principal invested. Past performance of a security, market, or financial product does not guarantee future results. Neither Zecco Holdings, Inc. nor Zecco Trading, Inc. offers any tax, legal or financial advice.

No consideration was paid for any testimonials displayed on this website. Your experience may vary, and the testimonials are no guarantee of future performance or success. Zecco Holdings, Inc., Zecco Trading, Inc.’s and their independent providers are not liable for any errors, incompleteness, or delays, or for any actions taken in reliance upon information contained herein. By accessing our websites, you agree not to redistribute the information found therein.

Market Data Copyright © QuoteMedia. Data delayed 15 to 20 minutes unless otherwise indicated. RT = Realtime, EOD = End Of Day, PD = Previous Day. Powered by QuoteMedia. Terms of Use.

© 2006-2008 Zecco Holdings, Inc. and Zecco Trading, Inc., Member FINRA /SIPC All rights reserved.