Overbought/Oversold, With Covered Calls by Austin Passamonte
Knowing when to buy and when to exit or how to protect
equity plays is basic for long-term prosperity. Here is one
way to do it using covered calls.
Every stock trader should be ready and
willing to write covered calls. They are a
powerful tool for locking in partial gains
and/or reducing cost basis. By the same
token, writing covered calls as a specific
trading method also holds great merit. Let’s
explore some scenarios for such tactics and see if they might
add to your personal equity curve.
MECHANICS OF TRADING COVERED CALLS
Option contracts are actively traded for literally thousands of
listed stocks, sectors, indexes, and exchange-traded funds
such as iShares† and HOLDRs†. Simple tactics for hedging,
investing, and/or locking in profits have never been more
available or diverse.
Here’s a simple rule: Never write a covered call on a share
you don’t want to own. Covered call writing is a neutral to
bullish strategy, but markets can always quickly turn bearish.
If that happens, you should not be stuck holding anything you
are not content to keep.