One of the most popular trades that beginners use in trading is the Covered Call. Covered calls allow you to enhance the yield on your portfolio by doing what the pros do – Selling options. They also provide limited risk by providing the stock you already hold as your downside protection against the unlimited risk of selling a Naked Option. Remember, NEVER SELL A NAKED OPTION!
The simple story of a covered call is that you buy 100 shares of a stock and then sell a call above the current price (Out of the Money). If the stock closes below your option strike price on expiration day, the option expires worthless and you keep your stock AND what you made when you sold the option. WINNER!
But there is a big downside to writing Covered Calls. Because you are selling a call, you tend to lose your winning stocks and limit your upside. We feel that losing your winning stocks when they are on a run is not a good way to make money. Our 21st Century Covered Call addresses this issue by allowing you to enhance your yield on congested stocks and reap most of the upside when a stock breaks out without losing the stock.