How to Profit from Writing Covered Calls
- 1). Look up what calls are selling for on the stocks you own. Your broker may already offer real-time option quotes. Free delayed option quotes are available at many sites online, such as the Chicago Board of Trade site -- find a link in the References section. Call options are usually quoted per share but, like stocks, they usually sell in 100-share lots.
- 2). Compare the prices you could get for writing covered calls for different time periods and stock prices. The shorter the time frame and the less bullish the market is on the stock, the less you'll receive. On the other hand, the less bullish the market is on your stock, the more likely your option will expire unused. And a shorter term on the option means the more calls you'll be able to write in a year. Covered call strategies depend on choosing the stock price and duration that seem the most profitable. Also keep in mind brokerage fees -- you may want to use a discount brokerage to keep costs to a minimum
- 3). Place an order to sell the same number of calls as the number of shares of stock you want to use for writing covered calls.
- 4). Watch the price of the stock and the calls. If the stock rises and the calls are exercised, you'll be notified by your broker if you need to sell the stock to the contract owner. Otherwise, when the calls expire, you can repeat the process. If the calls fall in value before they expire, you can also purchase them back for less than you sold them for and make a profit, and then sell different calls, if that's part of your covered call strategy.
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