≈ Covered Call Perk #2 ≈
Did you know covered calls can dramatically cut your portfolio volatility? The short-call component of the trade acts as a natural hedge against your stock position. Remember, the covered call consists of two parts. First, you buy 100 shares of stock. Then, you sell 1 call option.
When you add the short call, you’re lowering the initial risk of the position by the amount of the call’s delta. Here’s a simple way to think about it.
- If you sell a 30 delta call, then you’re reducing your exposure for the next $1 move in the stock by 30%.
- If you sell a 20 delta call, then you’re reducing your exposure for the next $1 move by 20%.
- If you sell a 40 delta call, then you’re reducing your exposure for the next $1 move by 40%.
So on and so forth.
As the call value (and delta) dwindles, so too does its volatility reduction capabilities. That’s why active traders are always selling new, more valuable calls against their stock positions. When you analyze the performance of a long stock versus a covered call, the latter always has a smoother flight path. In other words, the peaks and valleys in its equity curve aren’t so extreme.
And that’s a big reason why more conservative traders embrace them. They make the volatile game of stock investing less so.
🛑 Upcoming Webinar: Covered Call for Beginners › What is a Covered Call and how to trade it? ›› December 6th 2021, 8:30 PM EST
Join Tackle Trading in this upcoming Trading For Beginners webinar on the basics of this powerful options strategy: the Covered Call. Covered Calls is a great way to increase your monthly income derived from your Investment Portfolio. In this webinar, Coach Matt will go through what the Covered Call is and how to trade it.
Click on the button below to go to YouTube and set a reminder so you won’t miss it when Coach Matt goes LIVE.
Chart of the Day: CBOE S&P500 Buy-Write Index
Consider the volatility characteristics of buying and holding the S&P 500 (black) to selling covered calls on the S&P 500 (green). Notice how the green line exhibits much less fluctuation? Chalk that up to the short calls.
Video of the day: Queen’s Court – Three potential candidates for Covered Calls
Coaches Matt & Emily talk about three potential candidates for Covered Calls in today’s Queen’s Court: $AMAT, $AAPL, and $KR.
Today’s line up
Traders Lounge 11 PM EST
Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.
The Coaches Show Replay
If you missed last night’s episode where Coaches Gino Poore and Mark Justice talked about Protective Techniques or would like to watch it again, check it out here.
Halftime Report 12:30 PM EST
The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.
Trade Masters 7:00 PM EST
Every Wednesday at 7 PM EST join us on the Trade Masters where two Coaches go head-to-head to see who can find the best trading setup.
Trading Justice 453: The Covered Call Strategy
In this episode, Matt and Tim discuss the mindset and mechanics regarding the Covered Call equity and options strategy. Covered Calls are a great strategy to use in trading and investing account for capital appreciation and cash flow. Listen in to learn more about Covered Calls and how they can reduce volatility, give you a natural hedge, and more control in your returns.
Listen to the episode in the player below:
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.