Kris,
Welcome to the group. Since you are new to covered calls, you are on the right track in terms of your approach of now learning as much as you can about this strategy. I would recommend that you spend the next few months learning as much as you can before investing your money -- investing in covered calls with a pretend account (called paper trading) and tracking your results and learning along the way is an excellent way to begin.
I'm including some initial thoughts for your consideration below in red:
Best wishes,
Jeff
--- In justcoveredcalls@yahoogroups.com, "KrisMJohnson"
>
> Hello Everyone
> I have done some reading on Options from Yahoo Finance and I understand
> the basics of a covered call. However, I am still missing some key
> information about how most of them are executed here on the boards.
> For example:
> Do you typically hold 100 shares of a stock in your account and then do
> the call or do you all buy a long-term put for the shares and then write
> calls? First, I think you meant to use the word 'sell' instead of 'buy' in your sentence.
Different investors will have differing approaches on this question, but my recommendation is definitely to limit yourself exclusively to covered calls (buy the stock and sell the calls).
What is rolling up?
When your stock has made a bullish move and is well above your current strike price, some covered calls investors adjust their covered calls position by buying back their current option before expiration and selling a new option at a higher strike price. This new option can either be for the same month (which is termed simply 'rolling-up') or for a subsequent month (which is termed 'rolling-up-and-forward'; or equivalently 'rolling-up-and-out').
How often do you end up having to sell the
> stock at strike price?
This is highly dependent on: (1) whether your initial position is in-the-money, at-the-money, or out-of-the-money; and (2) the amount of increase or decrease in the stock price between the time you establish the position and the expiration date. However, it is easy to avoid assignment (if you want to keep the stock) just prior to expiration by rolling-forward to a new expiration month.
Do you typically buy stocks you want to keep for
> longer term gains - meaning you are confident to ride the ups and downs
> - and write calls for extra income OR do you find stocks that you do not
> want to really hold and write calls to "gamble" that the stock will
> remain flat or increase only slightly?
Covered calls investing is similar to buy-and-hold investing in the sense that we always want to select stocks that we are bullish about. Also, covered calls investing is a somewhat more conservative strategy than buy-and-hold, so we consider CCs to be either 'investing' or 'trading', but definitely not 'gambling'. Some CC investors prefer to hold their underlying stocks longer-term (especially if you're not in a tax-advantaged (e.g. IRA) account) to avoid short-term capital gains taxes, while other investors prefer to switch stocks more frequently as they perceive a better stock opportunity compared with what they are currently holding. Both approaches have merit -- so in this regard, we each need to find the approach that we are most comfortable with.
> Do yo have any site you can recommend to me to learn more about this?
There are many but here are some to get you going:
(1) http://www.optionseducation.org/strategy/covered_call.jsp;
(2) http://www.cboe.com/LearnCenter/default.aspx
(3) The Covered Calls Processes articles posts on my blog site:
http://coveredcallsadvisor.blogspot.com/search/label/Covered%20Calls%20Processes
> Also what tools do you use (any of the SMF_addin sheets) that are
> helpful to determine best stocks and options to write?
>Choices here too numerous to mention.
Basically, you need to determine your own stock selection criteria first, then seek to find a good screener that matches your needs. People on this group site can help you further with this as you move further up the learning curve.
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