8 Minute Read

Tackle Today: : The Pros & Cons of Covered Calls into Earnings

January 26, 2021

By | No Comments

≈ Cap your Upside, Partially Protect your downside

Traders,

One of the weapons mentioned in our previous Tackle Today message on fighting the earnings dragon was the short call. Let’s pick up on that theme.

The upside to selling calls against your stock position is you get paid a premium. That cash acts as a partial buffer to losses in the stock if prices fall post-earnings. If you want more protection, then sell a closer-the-money call with a higher premium.

There is a tradeoff to acquiring protection, however. You limit your profit potential. If you find that distasteful, then remember, you control where you cap the gain based on the strike price you sell. Say you have a $100 stock, for instance. You can either sell the $105 call for $3 or the $110 call for $1.50. The first one offers $3 of protection but obligates you to sell the stock at $105. The second provides $1.50 of protection while allowing you to profit up to $110.

Here’s our suggestion. Don’t set yourself to be disappointed if you hit your call strike. Run the numbers on what the max gain will be on the overall position and make sure you’re satisfied.

#TeamTackle


Chart of the Day

Covered Call Risk Graph

What gives you cash flow, mild downside protection, a higher probability of profit, and reduced position volatility? A covered call.


Video of the Day

The Basics of Covered Calls

Coach Greg teaches the basics of Covered Calls in this webinar replay.


Today’s line up

Traders Lounge 11 AM 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 8:30 PM EST

This is our weekly MasterMind group. Join the coaches tonight, 8:30pm EST to discuss the markets and help you prepare for the week.

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.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

The Tackle Today series is brought to you by Tackle Trading.

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.

Sign up now for a 15-DAY FREE TRIAL #


Legal Disclaimer

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.

Chart Modal

Tackle Trading

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.