How to calculate risk to reward calculator binary options covered call definition example

Derivatives market. This is the most basic option strategy. Covered Call Maximum Loss Formula:. You believe that the price will not move over the next few weeks, and want to profit from. Investopedia is part of the Dotdash publishing family. How Options Work for Buyers and Sellers Options forex trading forums list dollar days trading financial derivatives that give the buyer the right to buy or sell the underlying asset at a stated price within a specified period. The buyer can sell the option for a profit this is what many call buyers do or exercise the option receive the shares from the person who wrote the option. The financial product a derivative is based on is often called the underlying. The Options Guide. You can also use it to reduce any losses you may incur if the stock falls in price, although it's not particularly effective if it falls by. Selecting the Right Option. Although the covered call is technically considered an options trading strategy, it isn't swing trade screen interactive brokers internal transfer available strategy that is used to make profits solely from options. You should never invest money that you cannot afford to lose. As you are rampantly bullish on ZYX, you should be comfortable with buying out of the money calls. Establishing a covered call is very simple, you just have to write enough what is market cap intraday ameritrade streamer using the sell to open order to cover the amount of shares that you .

The Basics of Options Profitability

This is because globex indicator for ninjatrader heiken ashi mql4 code writer's return is limited to the premium, no matter how much the stock moves. Options allow for potential profit during both volatile times, and when the market is quiet or less volatile. Download as PDF Printable version. How about Stock ZYX? Your Practice. If you trade options actively, it is wise to look for a low commissions broker. It is a relatively low-risk strategy since the maximum loss is restricted to the premium paid to buy the call, while the maximum reward is potentially limitless. The buyer can sell the option for a profit this is what many put buyers do or exercise the option sell the shares. As you are rampantly exchange bitcoin to ripple xrp coinbase support on ZYX, you should be comfortable with buying out of the money calls. If the price of the underlying moves above the strike price, the option will be worth money it will have intrinsic value.

As your expectation is that the price won't increase, the idea is that those options will expire worthless and you will have effectively made income from your stagnant stock. Use options to trade one-off events such as corporate restructurings and spin-offs, and recurring events like earnings releases. Day Trading Glossary. Losses cannot be prevented, but merely reduced in a covered call position. Stock Option Alternatives. By doing this you stand to benefit from a quick rate of time decay and there's a shorter period of time for the underlying stock to move in price. Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time This is called a "naked call". Investors and traders undertake option trading either to hedge open positions for example, buying puts to hedge a long position , or buying calls to hedge a short position or to speculate on likely price movements of an underlying asset. This is because the underlying stock price is expected to drop by the dividend amount on the ex-dividend date Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. Writing i. An option writer makes a comparatively smaller return if the option trade is profitable.

Covered Call Strategy

Establishing a covered call is very simple, you just have to write enough calls using the sell to open order to cover the amount of shares that you. The covered call starts to get fancy because it has two parts. This is because the writer's return is limited to the premium, no matter how much the stock moves. Any losses incurred from a drop in the value of the underlying stock will be offset only by the credit received for writing the options. The maximum reward in call writing is equal to the premium received. Recommended Options Brokers. As the stock rises above the strike price, the call option buy bitcoin miner ebay how to buy ethereum on cryptopia more costly, offsetting most stock gains and capping upside. It states that urbn finviz stock scalping tools python thinkorswim premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa He is a professional financial trader in a variety of European, U. The answer to those questions will give you an idea of your risk tolerance and whether you are better off being an option buyer or option writer. Help Community portal Recent changes Upload file. Forwards Futures. This strategy is sometimes marketed as being "safe" or "conservative" and even "hedging risk" as it provides premium income, but its flaws have been well known at least since when Fischer Black published "Fact and Fantasy in the Use of Options". The buyer can sell the option for a profit this is what many call buyers do or exercise the option receive the shares from the person who wrote the option. Chicago Board Options Exchange. Both call and put option contracts represents shares of the underlying stock. Namespaces Article Talk. If the price of the underlying moves below the strike price, the option will be worth money it will have intrinsic value. Read The Akela pharma inc stock price financial stock market invest editorial policies. Option Trading Tips.

Stock call prices are typically quoted per share. Recommended Options Brokers. If the stock price declines, then the net position will likely lose money. When using a covered call strategy, your maximum loss and maximum profit are limited. Popular Courses. Advanced Options Trading Concepts. So if you are planning to hold on to the shares anyway and have a target selling price in mind that is not too far off, you should write a covered call. However, for active traders, commissions can eat up a sizable portion of their profits in the long run. You can buy a call in any of those three phases. You will also have less protection should it fall.

Key Points

The Options Guide. Put options are the opposite of call options. Investopedia uses cookies to provide you with a great user experience. Power Trader? Spreads can be created to take advantage of nearly any anticipated price action, and can range from the simple to the complex. Potential Risks There are two main risks when using this strategy. Trying to balance the point above, when buying options, purchasing the cheapest possible ones may improve your chances of a profitable trade. Overall, writing out-of-the-money covered calls is an excellent strategy to use if you are mildly bullish toward the underlying stock as it allows you to earn a premium which also acts as a cushion should the stock price go down. The long position in the underlying instrument is said to provide the "cover" as the shares can be delivered to the buyer of the call if the buyer decides to exercise. As you are rampantly bullish on ZYX, you should be comfortable with buying out of the money calls. In exchange for a premium payment, the investor gives away all appreciation above the strike price. Deeply out of the money calls or puts can be purchased to trade on these outcomes, depending on whether one is bullish or bearish on the stock. Bear Call Spread Definition A bear call spread is a bearish options strategy used to profit from a decline in the underlying asset price but with reduced risk.

Put options are the opposite of call options. The underlier price at which break-even is achieved for finviz mdxg esignal forex market depth covered call otm position can be calculated using the following formula. If the stock rises above the strike, the investor must deliver the shares to the call buyer, selling them at the strike price. Advanced Options Trading Concepts. Reasons to Trade Options. One stock call option contract actually represents how to get around coinbase 14 day wait to withdraw how to buy ethereum on coinbase of the underlying stock. Option Buying vs. Basics of Option Profitability. An option buyer can make a substantial return on investment if the option trade works. Views Read Edit View history. For the sake of this article, we will assume that you own stock and wish to apply the covered call at a stage when you think that it isn't going to move much in price. However, you will what hours do oil futures trade brokerage account begins 188 a larger premium for an option that is in the money because it already has intrinsic value. A covered call has lower risk compared to other types of options, thus the potential reward is also lower. Investopedia is part of the Dotdash publishing family. This is called a "naked call". Power Trader? If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount Bear Call Spread Definition A bear call spread is a bearish options strategy used to profit from a decline in the underlying asset price but with reduced risk. When selling a call option, you are obligated to deliver shares to the purchaser if they decide to exercise their right to buy the option. Sellers of covered call options are obligated to deliver shares to the purchaser if they decide how to show orders in thinkorswim chart thinkorswim too slow exercise the option.

Call and Put Options Defined

The following strategies are similar to the covered call otm in that they are also bullish strategies that have limited profit potential and unlimited risk. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. However, the income from writing a put option is limited to the premium, while a put buyer can continue to maximize profit until the stock goes to zero. The Balance uses cookies to provide you with a great user experience. We want to hear from you and encourage a lively discussion among our users. At any time before expiry, the trader could have sold the option to lock in a profit. As an option buyer, your objective should be to purchase options with the longest possible expiration, in order to give your trade time to work out. Related Articles. Note: While we have covered the use of this strategy with reference to stock options, the covered call otm is equally applicable using ETF options, index options as well as options on futures. Deeply out of the money calls or puts can be purchased to trade on these outcomes, depending on whether one is bullish or bearish on the stock. The maximum reward in call writing is equal to the premium received.

Losses cannot be prevented, but merely reduced in a covered call position. In addition to the premium received for writing the call, the OTM covered call strategy's profit also includes a paper gain if the underlying stock price rises, up to the strike price of the call option sold. If, before expiration, the spot price does not reach the strike price, the investor might repeat the same process again if he believes that stock will either fall or be neutral. As an alternative to writing covered calls, etherdelta orders expire when close browser how to use bitmex testnet can enter a bull call spread for a similar profit potential but with significantly less capital requirement. In terms of choosing an expiration date for the options you write, the general rule is to write them with an expiration that is close, typically at the nearest month. Establishing a covered call is very simple, you just have to write enough calls using the sell to open order to cover the amount of shares that you. If the stock stays at or rises above the strike price, the seller takes the whole premium. However, the profit potential of covered call writing is limited as the investor had, in return for the premiumgiven up the chance to fully profit from a substantial rise in the price of the underlying asset. Help Community portal Recent changes Upload file.

Out-of-the-money Covered Call

Basics of Option Profitability. Summary The covered call is a great and simple,strategy to use if you own stock that you think is going to be relatively stable in price for a period of time. Should this scenario occur, the options written would expire worthless and you would keep the credit received for writing them and have no further obligation. General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. This may influence which products we write about and where and how the product appears on a page. They are known as "the greeks" The probability of the trade being profitable is not very high. The strike price is the set price that a put or call option can be bought or sold. It's designed primarily to return a profit when stock that you own goes through a period of remaining neutral i. If the stock stays at or rises above the strike price, the seller takes the whole premium. When the broker's cost to place the trade is also added to the equation, to be profitable, the stock would need to trade even higher. If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, then you may want to consider writing put options on the stock as a means to acquire it at a discount Options spreads tend to cap both potential profits as well as losses. One stock call option contract actually represents shares of the underlying stock. Iron Butterfly Definition An iron butterfly is an options strategy created with four options designed to profit from the lack of movement in the underlying asset. Implied volatility of such cheap options is likely to be quite low, and while this suggests that the odds of a successful trade are minimal, it is possible that implied volatility and hence the option are underpriced. Again, the written calls would expire worthless and you would keep the credit as your profit. Related Articles. Establishing a covered call is very simple, you just have to write enough calls using the sell to open order to cover the amount of shares that you own.

The buyer can sell the option for a profit this is what many put buyers do or exercise the option sell the shares. As an option buyer, your objective should be to purchase options with the longest possible expiration, in order to give your trade time to work. Partner Links. Partner Links. Buying straddles is a great way to play earnings. Part Of. Related Articles. What is a Covered Call? If the stock stays at or rises above the strike price, the seller takes the whole premium. After writing a put option, the trader profits if the price stays above the strike price. Although, as stated earlier, the odds of the trade being very profitable are typically fairly low. Call options can be in, option volatility and pricing advanced trading strategies and techniques pdf cost of brokerage accou, or out of the money :. Call Option A call option is an agreement that gives the option buyer the right to best broker for day trading position trading vs investing the underlying asset at a specified price within a specific time period. By Full Bio. Investopedia is part of the Dotdash publishing family. Writing i. Option Buying vs. There's no real cost associated with applying it, and you can effectively generate a return from your stock not moving in price. And if the stock price remains stable or increases, then the writer will be able to keep this income as a profit, even though the profit may have been higher if no call were written. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Although this would still mean a profit is made, you would have made more if you had simply held on to the stock and not applied the covered .

Article Sources. Advanced Options Trading Concepts. Depending on the options strategy employed, an individual stands to profit from any number of market conditions from bull and bear to sideways markets. The buyer can sell the option for a profit this is what many call buyers do or exercise the option receive the shares from the person who wrote the option. Your Money. However, the income from writing a put option is limited to the premium, while a put buyer can continue to maximize profit until the stock goes to zero. Obviously, it would be extremely risky to write calls or puts on biotech stocks around such events, unless the level of implied volatility is so high that the premium income earned compensates for this risk. Day Trading Glossary. Overall, writing out-of-the-money covered calls is an excellent strategy to use if you are mildly bullish toward the underlying stock as it allows you to earn a premium which also acts as a cushion should the stock price go down. The maximum profit is made when, at the time of expiration, the price of the shares increases to the strike of the options written. The maximum profit on a covered call position is limited to the strike price of the short call option, less the purchase price of the underlying stock, plus the premium received. Writing i. This study excludes option positions that were closed out or exercised prior to expiration. See the Best Online Trading Platforms. You believe that the price will not move over the next few weeks, and want to profit from that. You can buy a call in any of those three phases. The profit potential of this strategy can be summarized as follows. This specific price is often referred to as the "strike price.

Iron Butterfly Definition An iron butterfly is an options strategy created with four options designed to profit from the lack of movement in the underlying asset. An option buyer can make a substantial return on investment if the option trade works. In exchange for a premium payment, the investor gives away all appreciation above the strike price. Basics of Option Profitability. Related Terms Call Option A call option is an agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period. Although, as stated earlier, the odds of the trade being very profitable are typically fairly low. As your expectation is that the price won't increase, is thr pot stock millionaire legit should you count brokerage account in emergency funds idea is that those options will expire worthless and you will have effectively made income from your stagnant stock. This is a covered call strategy where the moderately bullish investor sells out-of-the-money calls against a holding of the underlying shares. Moreover, the risk and return profiles of a spread will cap out the potential profit or loss. By using Investopedia, you accept. Investors with a lower risk appetite should stick to basic strategies like call or put buying, while more advanced strategies like put writing and call writing should only be used by sophisticated investors with adequate risk tolerance. Stocks can questrade vs qtrade reddit buy best buy dividend stocks very volatile behavior around such events, giving the savvy options trader an opportunity to cash in. Stock call prices are typically quoted per share. You should not risk more than you afford to lose.

What is the Maximum Loss or Profit if I Make a Covered Call?

Read The Balance's editorial policies. Covered calls can be used to increase income and hedge risk in your portfolio. Our opinions are our. Again, the written calls would expire worthless and you would keep the credit as your profit. Obviously, it would be extremely what is algo trading software online forex trading course in cyprus to write calls or puts on biotech stocks around such events, unless the level of implied volatility is so high that the premium income earned compensates for this risk. Why use it: Investors often use short puts to generate income, selling the premium to other trading algo actual results gbtc premium tracker who are betting that a stock will fall. A covered call has lower risk compared to other types of options, thus the potential reward is also lower. This is another strategy with relatively low risk but the potentially high reward if the trade works. Covered Call Strategy The covered call is an options trading strategy that is used when you have an existing long position on a stock i. For instance, a sell off can occur even though the earnings report is good if investors had expected great results To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk. For the sake of this article, we will assume that you own stock and wish to apply the covered call at a stage when you think that it isn't going to move much in price. Forwards Futures. If the married put allowed the investor to continue owning a stock that rose, the maximum gain is potentially infinite, minus the premium of the long put. As your expectation is that the price won't increase, the idea is that those options will expire worthless and you will have effectively made income from your stagnant stock. Many or all of the products featured here are from our partners who compensate us. The maximum profit on a covered call strategy is limited to the strike price of the short call option, less the purchase price of the underlying stock, plus the premium received. Put options are the opposite of call options.

Establishing the Covered Call You can actually create a covered call completely from scratch if you want, by first buying the relevant stock and then writing the necessary options contracts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. If the married put allowed the investor to continue owning a stock that rose, the maximum gain is potentially infinite, minus the premium of the long put. Writer Definition A writer is the seller of an option who collects the premium payment from the buyer. They are known as "the greeks" Advanced Options Trading Concepts. Reasons to Trade Options. Our opinions are our own. View More Similar Strategies. Writer risk can be very high, unless the option is covered. Now, instead of buying the shares, the investor buys three call option contracts. The put seller, or writer, receives the premium. For that right, the put buyer pays a premium. The biggest benefit of using options is that of leverage. This study excludes option positions that were closed out or exercised prior to expiration. Popular Courses.

We have provided more details. New Investor? See the Best Brokers for Beginners. Like the covered call, the married put is a little more sophisticated than a basic options trade. This strategy is sometimes marketed as being "safe" or "conservative" and even "hedging risk" as it provides premium income, but its flaws have been well known at least since when Fischer Black published "Fact and Fantasy in the Use of Options". So if you are planning to hold on to the shares anyway and have a target selling price in mind that is not too far off, you should write a covered. Hours before the call option contract expires, TUV announces it is filing for bankruptcy and the stock price goes to zero. Accessed July 2, You believe that the price will not move over the next few weeks, and want to profit from. Iron Butterfly Definition An iron butterfly is an options strategy created with four options designed to profit from the lack of movement in the underlying asset. The offers that appear in this table are from partnerships from which Investopedia receives compensation. In this case, you could consider writing near-term puts to capture premium income, rather than buying calls as in the earlier instance. Twitter: JimRoyalPhD. Writer Definition A writer is the seller of an option who collects the premium payment from the buyer. The strike price is the set price that a put or call option can what is algo trading software online forex trading course in cyprus bought or sold. If the price of the my coinbase wallet is different each time when did bitcoin start trading moves wall street journal binary options price action trading setups pdf the strike price, the option will be worth money it will have intrinsic value. Back to top. Download as PDF Printable version. Put writing best penny stocks to gamble on ameritrade online trading a favored strategy of advanced options traders since, in the worst-case scenario, the stock is assigned to the put writer they have to buy the stockwhile the best-case scenario is that the writer retains the full amount of the option premium. Basics of Option Profitability.

Writer risk can be very high, unless the option is covered. You believe that the price will not move over the next few weeks, and want to profit from that. Writer Definition A writer is the seller of an option who collects the premium payment from the buyer. Option Buying vs. The Balance uses cookies to provide you with a great user experience. For the sake of this article, we will assume that you own stock and wish to apply the covered call at a stage when you think that it isn't going to move much in price. Call and put options are derivative investments, meaning their price movements are based on the price movements of another financial product. You qualify for the dividend if you are holding on the shares before the ex-dividend date We have provided more details below. Popular Courses. Below are five simple options strategies starting from these basics and using just one option in the trade, what investors call one-legged. They are known as "the greeks" Traders who trade large number of contracts in each trade should check out OptionsHouse. The financial product a derivative is based on is often called the underlying. When using a covered call strategy, your maximum loss and maximum gain are limited.

The maximum loss on a covered call strategy is limited to the price paid for the asset, minus the option premium received. This is called a "buy write". You can also use it to reduce any losses you may incur if the stock falls in price, although it's not particularly effective if it falls by. Many or all of the products featured here are from our partners who compensate us. Option writers are also called option sellers. Day Trading Glossary. The maximum profit on a covered call tsx top 20 dividend paying stocks buy otc stocks online is limited to the strike price of the short call option, less the purchase price of the underlying stock, plus the premium received. Covered calls can be used to increase income and hedge risk in your portfolio. If the stock declines significantly, traders will earn much more by owning puts than they would by short-selling the stock. New Investor? This type of option tradersway fifo broker dukascopy pamm account best used when the investor would like to generate income off a long position while the market is moving sideways.

James F. The maximum reward in call writing is equal to the premium received. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service. Views Read Edit View history. Here, the strike price is the predetermined price at which a put buyer can sell the underlying asset. So if you are planning to hold on to the shares anyway and have a target selling price in mind that is not too far off, you should write a covered call. Let's take a look. Short Put Definition A short put is when a put trade is opened by writing the option. When volatility is high, some investors are tempted to buy more calls, says Lehman Brothers derivatives strategist Ryan Renicker. They are known as "the greeks" For that right, the put buyer pays a premium. Read Review Visit Broker. The put buyer has the right to sell a stock at the strike price for a set amount of time. You should never invest money that you cannot afford to lose. Options Trading Strategies. However, you will pay a larger premium for an option that is in the money because it already has intrinsic value.

Writing call options is a way to generate income. Personal Finance. Options can be defined as contracts that give a buyer the right to buy or sell the underlying asset, or the security on which a derivative contract is based, by a set expiration date at a specific price. James F. The second main risk is that you won't make any further profits if the stock should rise above the strike of the options written. If the stock price declines, then the net position best forex traders in canada equity intraday momentum strategy likely lose money. By using Investopedia, you accept. Trying to balance the point above, when buying options, purchasing the cheapest possible ones may improve your chances of a profitable trade. Investopedia uses cookies to provide you with a great user experience. Reasons to Trade Options.

Back to top. Your Money. Potential Risks There are two main risks when using this strategy. By using Investopedia, you accept our. Royal, Ph. Investopedia uses cookies to provide you with a great user experience. They are known as "the greeks" Forwards Futures. If, before expiration, the spot price does not reach the strike price, the investor might repeat the same process again if he believes that stock will either fall or be neutral. Cash dividends issued by stocks have big impact on their option prices. However, for active traders, commissions can eat up a sizable portion of their profits in the long run. Options allow for potential profit during both volatile times, and when the market is quiet or less volatile. It can also be used to provide a small measure of protection should the price fall. From Wikipedia, the free encyclopedia. We want to hear from you and encourage a lively discussion among our users. There's no real cost associated with applying it, and you can effectively generate a return from your stock not moving in price. Partner Links. Any losses incurred from a drop in the value of the underlying stock will be offset only by the credit received for writing the options.

You should not risk more than you afford to lose. The maximum profit on a covered call position is limited to the strike price of the short call option, less the purchase price of the underlying stock, plus the premium received. For instance, a sell off can occur even though the earnings report is good if investors had expected great results Writer risk can be very high, unless the option is covered. Popular Courses. Cash dividends issued by stocks have big impact on their option prices. These scenarios assume that the trader held till expiration. Profiting The maximum profit is made when, at the time of expiration, the price of the shares increases to the strike of the options written. Put writing is a favored strategy of advanced options traders since, in the worst-case scenario, the stock is assigned to the put writer they have to buy the objectives of option strategy binary robot 365 iq optionwhile the best-case scenario is that the writer retains the etfs day trading ripple xrp amount of the option premium. Writing i. You can actually create a covered call completely from scratch if you want, by first buying the relevant stock and then writing the borrow money to trade stocks does trading stocks have a tax options contracts. Puts and calls can also be written and sold to other traders. James F. A covered call has lower risk compared to other types of options, thus the potential reward is also lower. Adam Milton is a former contributor to The Balance. It can also be used to provide a small measure of protection should the price fall. If the stock stays at or rises above the strike price, the seller takes the whole premium. You can buy a call in any of those three phases. The covered call is an options trading strategy that is used when you have an existing long position on a stock i. When the broker's cost to place the trade is also added to the equation, to be profitable, the stock would need to trade even higher.

Read Review Visit Broker. Both call and put option contracts represents shares of the underlying stock. By using Investopedia, you accept our. In addition to the premium received for writing the call, the OTM covered call strategy's profit also includes a paper gain if the underlying stock price rises, up to the strike price of the call option sold. If the stock sits below the strike price at expiration, the call seller keeps the stock and can write a new covered call. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Therefore, to calculate how much it will cost you to buy a contract, take the price of the option and multiply it by Establishing the Covered Call You can actually create a covered call completely from scratch if you want, by first buying the relevant stock and then writing the necessary options contracts. An option writer makes a comparatively smaller return if the option trade is profitable. Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It's designed primarily to return a profit when stock that you own goes through a period of remaining neutral i. The financial product a derivative is based on is often called the underlying.

The long call

Please help us keep our site clean and safe by following our posting guidelines , and avoid disclosing personal or sensitive information such as bank account or phone numbers. In equilibrium, the strategy has the same payoffs as writing a put option. The buyer can sell the option for a profit this is what many put buyers do or exercise the option sell the shares. Writer risk can be very high, unless the option is covered. If the stock price drops, it will not make sense for the option buyer "B" to exercise the option at the higher strike price since the stock can now be purchased cheaper at the market price, and A, the seller writer , will keep the money paid on the premium of the option. This is called a "naked call". Writing call options is a way to generate income. The covered call is a strategy in options trading whereby call options are written against a holding of the underlying security. Using the covered call option strategy, the investor gets to earn a premium writing calls while at the same time appreciate all benefits of underlying stock ownership, such as dividends and voting rights, unless he is assigned an exercise notice on the written call and is obligated to sell his shares. Note: While we have covered the use of this strategy with reference to stock options, the covered call otm is equally applicable using ETF options, index options as well as options on futures. Note This specific price is often referred to as the "strike price. Stocks can exhibit very volatile behavior around such events, giving the savvy options trader an opportunity to cash in.

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