from InformedTrades.com: link to complete story:
Note, in the chart above, the option quote circled is for the May 30 (price of the stock $30 per share see middle row, options are traded every week, 2 weeks or monthly) the 1.75 is the bid/offer and 2.00 is the asking price (multiply times 100 = $175 or asking $200). This is the amount you get after you own 100 shares of the stock and sell the call option (each option contract controls 100 shares of stock, a call option increases in value when the stock goes up, a put option increases in value when the stock goes down). This is a very liquid market and trades just the same as most high volume popular stocks or ETF's such as Apple, Microsoft, IBM, Goldman Sacks, OIH, SPY, EEM, EWZ etc...
I did a covered call on USO (Oil ETF) last Friday.
I did a covered call on USO (Oil ETF) last Friday.
Bought USO at $32.55. Sold Jan $35 Call for $2.10
Since I will be in this trade for at least a few weeks, I thought I would go over it in detail in several posts. I have done many covered calls, although this is my first in a couple of months. I find them to be a great strategy.
I should probably state that this is not a trading recommendation. It is only what I am doing, and what works for some may not work for others.
I know some people do not know what a covered call is, so I will try to describe them in general. A covered call is when you sell (also called writing) a call option that is “covered” by an underlying security that you own (verses selling a naked call option).
What that means in simple terms is that you buy a stock, and then sell the right for someone to buy that stock from you for more than you paid for it. I bought 100 shares of USO for $32.55 a share, and I sold the right for someone to buy it from me for $35.00 a share anytime between now and the 3rd Friday in Jan. That person paid me $2.10 a share (100 shares, $210.00) for that right.
When you buy a stock call option, what you are doing is buying the right to purchase a stock at a certain price. Let’s say stock XYZ is selling for $10. You can buy the right to purchase that XYZ stock for $11 for only a small amount of money. Therefore, if the stock goes above $11, you get to buy it at $11 and sell it at the current price without having to originally put as much money down as you would if you just bought the stock ( I could write several more pages describing in general what an option is, but I would be just repeating what is on a thousand websites anyway. Therefore, if you do not understand what a call option is in my description here, or just want to know more, do a search on “call options” and you will get tons of info.) here is very good overview of option basics from the CBOE-
http://www.cboe.com/LearnCenter/cboe...mod_01_01.aspx
Since I will be in this trade for at least a few weeks, I thought I would go over it in detail in several posts. I have done many covered calls, although this is my first in a couple of months. I find them to be a great strategy.
I should probably state that this is not a trading recommendation. It is only what I am doing, and what works for some may not work for others.
I know some people do not know what a covered call is, so I will try to describe them in general. A covered call is when you sell (also called writing) a call option that is “covered” by an underlying security that you own (verses selling a naked call option).
What that means in simple terms is that you buy a stock, and then sell the right for someone to buy that stock from you for more than you paid for it. I bought 100 shares of USO for $32.55 a share, and I sold the right for someone to buy it from me for $35.00 a share anytime between now and the 3rd Friday in Jan. That person paid me $2.10 a share (100 shares, $210.00) for that right.
When you buy a stock call option, what you are doing is buying the right to purchase a stock at a certain price. Let’s say stock XYZ is selling for $10. You can buy the right to purchase that XYZ stock for $11 for only a small amount of money. Therefore, if the stock goes above $11, you get to buy it at $11 and sell it at the current price without having to originally put as much money down as you would if you just bought the stock ( I could write several more pages describing in general what an option is, but I would be just repeating what is on a thousand websites anyway. Therefore, if you do not understand what a call option is in my description here, or just want to know more, do a search on “call options” and you will get tons of info.) here is very good overview of option basics from the CBOE-
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