Add Investing Flavor Using Covered Calls

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We’ve covered Forex, some investment basics, efficient markets, and mutual funds. Today I want to get a little more in depth and start to talk options - more specifically writing your own call options off of shares that you already own. In terms of financial vehicles, calls are are contracts issued that people buy from you. What they are buying is the right to buy a security at a fixed price during the life of the call option. What that means is that if you buy a call, say a $590 June Google (approx $585 at writing of this) and the underlying security, Google, increases past $590 then you are guaranteed the right purchase at your call’s price - you win! The rule of thumb is that if you are buying a call option you are in the green as the underlying security in your call increases in price. And the opposite if you are selling or issuing the call. 

Sounds great right?! Well if you own the underlying security and you sell call options and the underlying security never goes above the price you’ve set then you win. You’ve sold a call that has expired with out being executed. What if you sell a call and the underlying security does rise above the price you’ve set - it’s probably getting executed. Now one of two things has to happen, if you own the underlying security (called a covered call) then you deliver those shares for the contracted call price. If you don’t then you have to go out into the open market buy the shares and then sell them for the call’s price. It can get pretty steep on the losing end of selling calls if you don’t have plan or the right tools. One thing worth mentioning is that all options also can be bought and sold in open markets which can add an extra level of complexity and risk associated.

Part of the DashboardIf you are looking for a platform to help you make a few extra dollars on a portfolio you already have then writing some covered call options could be a could course of action for you. I recommend Born To Sell. As far as tools for the DIY investor out there I really appreciated how clean and colorful this platform is. Here’s a bit of info I pulled right from their materials that really hit home with me.

“Covered calls are the most popular options-based strategy. Charles Schwab
has said that 84% of their option-enabled accounts do covered calls. In
fact, yesterday Schwab spent $1B buying online broker OptionsXpress so that
they could get more exposure to option investors”

Starting with their website it is a covered call information haven. They do a great job of offering some solid education to anyone interested in adding covered calls to their investment strategy. There is a ton of great articles that will run from investing 101 to helping you dial in on what kind of plan you want to craft. Even a newsletter to keep you in the loop.

A bit about the actual software. I had the opportunity to play with it for a bit, I mean I couldn’t give you an honest review without doing that. One of the easiest investing tools I have used to date. Navigating the dashboard and the tools functionality was very easy and quick to pick up. The metrics built in allow you to work towards income goals and keep tabs on your portfolio. As covered calls and options in general are time sensitive their calendar and email functionality make it very easy to stay on top of them. I really liked the options tutorial that goes along with it - definitely worth the time.

Being a blogger there was one more thing that really touched my big blogger’s heart and that is..yup you guessed it an active finance blog. Born To Sell doesn’t just talk about covered calls but all kinds of great investing topics. Best part about it is that it’s an active sight - not just a static page offering generic info to get you to try their product.

Overall, if you are looking for a way to add a little flavor and perhaps some extra dollars to your portfolio covered calls might not be a bad idea. Make sure you do your homework! Born To Sell gets some pretty good remarks from me: good info, easy to use platform, good visuals, and good support - everything you really need. Let's chat about any experiences you've had using options trading as part of your investing plan? I had the opportunity to talk to a guy that worked for the guys behind the Black Scholes model before they created it - that's a whole different story though! 

Comments

[LaTisha @FSYAonline]

Nice! I had no idea about Born to Sell. I'm looking to get more into options and strategies especially for earnings season. I'll take a look at them.

[Nunzio Bruno]

Yeah I was pretty impressed too. Thanks for the comment!

[options creme]

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