Tackle Today: Risk Averse? Know Thy Covered Call
December 2, 2021
« Covered Call Perk #3. »
Traders,
When I first started trading, I thought it was all about making those massive profits off of directional trades and driving Lamborghini’s like the Wolf of Wall Street. I figured if I could just pick the winners I would be rolling in the dough! I had no real frame of reference to go by other that what I had seen in movies like Wall Street, Trading Places, Boiler Room etc. This visual couldn’t have been further from the truth. What I learned over time is that picking the winners and driving Lambo’s is really more fiction than fact. I actually learned that picking the winners was only a very small part of the trading equation and that in fact managing risk is far more important than being right in terms of direction. It is ultimately the risk or the amount of the risk that determines the long-term outcome. This may be foreign to some who have not fully experienced the market and all it has to offer. If you have not seen this yet you have something to look forward to but not really as it’s not really a fun experience.
There are many ways to manage risk, we can use stop losses and position sizing and scaling in and out of trades and all these will help offset risk and make the trading experience more palatable. However, there is another way to offset or manage risk and that is by choosing a strategy that limits risk from the start or by its very action can limit the risk as well. Here is where the covered call strategy really begins to shine. When we collect credits from selling calls it can take the overall risk and reduce it by moving our breakeven price lower by the amount of credit. This essentially means that the trade can move against us to a certain degree and yet we can still either breakeven or potentially still win!
There are several strategies like the covered call that can reduce our risk but not many are as versatile as the covered call. It can be used for defense or offense in a position and for that reason it is right at the top of the list for versatility of strategies.
The beauty of the covered call is that it doesn’t rely solely on the direction of movement for its ability to win!
#TeamTackle
🛑 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: Exxon Mobile ($XOM)
Some of this pullback in XOM could have been offset by selling covered calls. The overall risk is the stock going to zero but any credit from the covered calls would reduce this risk and this is one of the many advantages of the covered call.
Video of the day: Jedi Options – How to trade a Covered Call to reduce volatility on a stock position
Coach Tyler teaches how to trade a Covered Call to reduce volatility on a stock position from the Tackle 25 list ($CHW) in today’s Jedi Options.
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.
Cashflow Club 8:30 PM EST
Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.
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.
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