I'm just looking for some clarification regarding selling covered calls. Moderately new to options. So say there's a stock at 100$. I buy 100 shares for 10k. I can then sell an OTM covered call at say 150$. If it hits/passes strike I get to keep the premium, and sell the stock at a profit if its exercised (150$=15k)? If its flat until expiry I keep the premium and break even on the stock? So the only way to really lose money is if the stock tanks enough to offset the premium I received?
Am I oversimplifying? It seems like a good bet to make on a blue chip stock that's likely to go up. Am I missing something here? Can someone point out any errors in my thinking above or correct me if I'm wrong.
Was looking at leaps with contract prices of like 70.00$ (7k) and it had me wondering. Thanks in advance.
Posted by eyebuystocks
1 Comment
Yes, you have got it correct.
The other way to ‘miss out’ on profit is if your stock goes past your strike price, you will still have to sell your stock at strike price. In your example, if the stock goes to $160 per share, you will:
1. Keep the premium
2. Your brokerage automatically Sells 100 shares at $150 (even if the price is higher than $150) at expiration date (sometimes your share may get called earlier)
Rinse and Repeat. Goodluck!