RED Option Covered Calls:

Covered Calls, or buy-writes, is one of the industry's most recognized option trading strategies. To that end, RED Option has created an advisory to teach you how to spot and execute high quality covered call trades. This advisory will specialize in liquid equities that have enough premium in their nearer term strikes to benefit from writing calls against them.

A covered call is a strategy employed when you are long stock, don't expect a large move in the underlying, and want to sell premium in order to enhance your returns and lower your cost basis. A short call option with an at-the-money or slightly in-the-money strike price allows the position to generate extra income while still maintaining the benefits of holding the asset, such as dividends and voting rights. This strategy allows you to use the collected premium to lower the cost of entering the position. Also, the risk of holding a short call option is reduced since the investor holds a long position.

All recommendations will be a combination of buying the stock and selling a call simultaneously. We will use primarily large to mid-cap equities with high liquidity in both the stock and the options. The length of holding the position will depend on the underlying stock and its movement. We approach this strategy in a conservative manner, using at-the-money or slightly in-the-money strikes and trying to gain a few percent each month rather than using out-of-the-money strikes and taking on higher risk.

We created this advisory to offer RED Option clients the ability to achieve positive returns in flat and rising equity markets. Autotrade clients are likely to receive a better execution price because of our ability to work large orders.

Example of a Covered Call: