Covered call and collars are advanced strategies which include selling options rather than only buying.

         

Covered Calls

Covered calls are a great strategy for conservative investors. With a covered call the investor would buy shares in a desired stock and then sell a option agfainst it.

For example, the investor likes stock FDD, and beleives that FDD will continue to be great to own for the long term, but as for short term, he/she feels that it will trade sideways. At this point, the investor would buy 100 shares of FDD and sell 1 out of the money call. If the stocks current price is $30, and the investor sold a $35 call, at expiration if the stock is below $35 the investor keeps the amount they sold the call for and the money. If the stock is over $35, the investor can buy back the call option for a loss or give up the 100 shares.


For more infomation see the Resources page. Check out www.freeoptionspick.com for FREE picks.

Stock Option Collar

The collar is very similar to the covered call strategy.

Suppose you buy 100 shares of GHH at $13 in May and would  to protect your downside with little or no cost. You would enter a collar by buying one JUN 9 Put at $0.50 and selling one JUN 15 Call at $0.70.

The maximum that you can make is  when the stock is at $15. Above 15, the profit on the stock is  offset by the loss on the call option that you sold. On the downside, the maximum loss occurs with the stock at or below $10. Below $10, the profit from the put offsets the loss from the stock.

See Resources.