what's up everyone i'm steven and
welcome back to my channel this video is
all about td ameritrade options trading
today i'll focus on the covered call i'm
going to talk about what a cover call is
when you want to use the cover call
strategy and show you how to sell a
covered call
options trading can be used to generate
income and the covered cost strategy is
one the best ways to generate consistent
income and make you some extra cash when
you're selling covered calls you make
money on the premium you collect the
premium is the current market price of
the option contract is the money you
receive today for selling the contract
and keep regardless of where the option
is exercised or expires worthless so
what is a covered call in a covered call
you collect a premium for selling
someone else the right to purchase a
stock that you already own at a
predetermined strike price price at
which a put or call option can be
exercised and expiration date to use the
covered cost strategy you will need to
own at least 100 shares of the stock for
every call contract you plan to sell as
each option contract prefers the 100
shares of the underlying security you
can either build up your holdings over
time by slowly adding and buying shares
here and there until you have enough
shares of the stock to equal 100 or you
can purchase 100 shares of the
particular stock outright to use the
strategy the share price of different
stocks vary drastically so if you want
to sell cover calls on a stock that
costs ten dollars per share you will
need an initial investment of a thousand
dollars if you want to sell cover calls
on the stock that cost one hundred
dollars per share you would need an
initial investment of ten thousand
dollars if you pick a stock that is more
volatile meaning there is more
day-to-day fluctuations in the share
price you will collect a higher premium
but your option is also more likely to
be exercised depending on the strike
price you set if you pick a stock that's
more stable and steady and has less
fluctuation you will collect a lower
premium but your option will be less
likely to be exercised depending on
strike price you set finally you will
want to pick a stock that you are okay
with selling a stock you're comfortable
with selling to use the money for a
better opportunity do not sell cover
calls on stocks you want to keep for the
long term because if the strike price is
reached at expiration the option will be
exercised and you will sell the 100
shares let me know what stock you want
to sell cover calls on below in the
comments now i'll show you how to sell a
covered call in one of two ways for the
first method go to trade at the top of
the navigation bar and then hit options
we will keep the option strategy as a
single order if we already own 100
shares of the stock we plan to sell a
covered call on
enter the stock ticker into the box
the example i'll use today is with amd
stock
the number of shares you own will be
under the symbol
just remember to pick a stock that
you're okay with selling because if the
strike price is reached at expiration
the option will be exercised and you
will sell the 100 shares
click on the option chain
you can see the premium you could
collect at different strike prices here
under the bid column
we will be focusing on the bid column
under calls for our covered call
[Music]
the nice thing about the option chain is
that you can see a lot of information at
once
at 160 dollar strike price you will
collect
1.82 cents per share
which is the 182 dollar premium
as each option contract is equal to 100
shares of the underlying security
it is important to pick a strike price
above your cost basis or what you paid
for the stock so you can make money even
if the option is exercise
if your cost basis was 150
choose a strike price above 150
whether it is 150 2.5 155 or 160.
you will see you get a higher premium at
a lower strike price and lower premium
at a higher strike price
we will select an expiration of november
26 and a strike price of 160
for this example
if you click on the enter sell order on
this screen this will auto populate your
sell order
enter one for the number of contracts as
we have enough shares to sell one
contract
click on the lock
and you will see the estimated premium
if you would like to have the fastest
order execution at the best price
select market order to execute at the
market price for the premium
[Music]
hit the review order
confirm everything is good to go on the
next page
you are selling the open and market
order one contract of amd with an
expiration date for november 26 2021 at
a strike price of 160 dollars for day
only
you will notice that for options
contracts there is a 65 commission
charge for each contract
so your total amount you get today will
be 181.35
after everything is confirmed hit place
order
and that's it you have sold your first
covered call
now for the second method
use the second method if you don't
already own 100 shares of the stock you
want to sell a covered call on
we're going to be changing our options
strategies from single order to a
covered call
enter in your symbol
in this example we will do blackberry
enter 100 as the quantity
this will allow you to buy enough shares
to sell one contract
select an expiration date
we will do november 26 for this example
and choose a strike price above your
cost basis which would be the current
share price
we can select 12
you will see your estimated amount which
would be the cost to buy 100 shares
subtracted by the money you are
collecting from the premium
you can keep the time and force for day
or change to good till cancel
i recommend keeping it as the day when
you're trading options
hit review order and if everything is
good place order
now after you place your order by either
method here's what can happen
the first thing is that you can always
collect and make the money from the
premium collected
now if by the expiration date the share
price is below the strike price
option contract expires worthless so you
keep the 100 shares of the stock and
make money from the premium collected
[Music]
the second is by the expiration date the
share price could have went to or above
the strike price at expiration and the
contract is exercised
you will sell the hundred shares to the
buyer you will make the difference
between a strike price and your cost
spaces and the money from the premium
collected if the share price was above
the strike price you miss out on the
potential gains from that difference
another way to start off the strategy or
if you want to continue the strategy if
the option was exercised is to sell cash
secure puts you can collect premiums
from selling a cash secure put on the
stock at a strike price you want to buy
back into the stock at let me know down
below if you're interested in a video on
cash secure puts or videos on options
trading strategies i plan to create more
videos that could be helpful to generate
consistent profits when selling options
hope you guys enjoyed and found this
video helpful if you did go ahead and
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