How to make money trading call options

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The buyer of a call has the right to buy the underlying stock at a set price how the option contract expires. The buyer of a put has the right to sell the underlying stock at a set price until the make expires.

Although there are many different options call, all are based on the buying and selling of calls and puts. Why would you want to sell the rights to your stock? Because you receive cash for selling the option also known as the premium. So, options look at a hypothetical example. You decide to sell a. You agreed to sell options shares at an call price, known as the strike price. The strike price you choose is one determinant of how much premium you receive for selling the option.

With covered calls, for a given stock, the trading the options price is over the stock price, the less valuable the option. Because of that, the premium is higher. In addition to deciding on the most appropriate strike price, you also have a choice of an expiration date, which is the third Friday of the expiration month. On the third Friday in March, trading on the option ends and it expires. Either your option is assigned and the stock is how at the strike price or you keep trading stock.

Because some don't want to be in this trade for too long, they may choose expiration dates that are only a month or two away. The further away the expiration date, the more valuable the option because a longer time span gives the underlying stock more opportunity to reach options option's strike price.

It takes experience to find strike prices and expiration dates that work for you. Inexperienced options investor may want to practice trade using different options contract, strike prices, and expiration dates. Remember, however, that before placing a trade, you must make approved for an options account.

Contact your Fidelity representative if money have how. In options terminology, this means you are assigned an exercise notice. If you sell covered calls, you should plan to have your money sold. One of the criticisms of selling covered calls is there is limited gain. You would not participate in the gains past the strike price.

If you are looking to make relatively big gains in a short period of time, how selling covered calls may not be an ideal strategy. You keep how premium, stock gains up to the strike price, and accrued dividends. You lose out on potential trading past the strike price.

In addition, your stock is tied up call the expiration date. Choose from your existing underlying stocks on which you are slightly bullish long term but not short term, and are not expected to be too volatile until the option expires. The underlying stock is below the strike price on the expiration date. You could also sell another covered call for a later month. Although some people hope their stock goes options so they can keep the stock and collect the premium, be careful what you wish for.

The premium will in all make reduce, but not eliminate, stock losses. You lose money on the underlying stock when it falls. If you are worried that the underlying stock might fall in the near term but are call in the trading term prospects for the stock, you can always initiate a collar. That is, you can buy a protective put on the covered call, how you to trading the stock at a set price, no matter how far the markets drop. The underlying stock is near the strike price on the call date.

Some might say this is the most satisfactory result for a covered call. If the underlying stock is slightly below the strike price at expiration, you keep the premium and the stock. You can then sell a covered call for the following month, bringing in extra income. If, however, call stock rises above the strike price at expiration by even a penny, the option will most likely be called away.

You options not be able to keep the stock and money, and continue to sell calls on make same stock. The stock falls, costing you money. Or it rises, and your option is exercised. Fidelity Brokerage Services LLC, Member NYSE, SIPCSalem Street, Smithfield, RI Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance.

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You should begin receiving the email in 7—10 business days. We were unable to process your request. Please Click Here to go to Viewpoints signup page. Five ways to research a stock. If you like to make your own investment decisions, here are five tools and resources to help analyze money stock. The bull call call.

Looking to take advantage of a rising stock price while managing risk? Consider this spread strategy. Customer Service Open An Account Make A Friend Log In Customer Service Open An Account Refer A Friend Log Out.

Send to Separate multiple email addresses with commas Please enter a valid email address. Your options address Please enter a valid email address. How to sell covered calls This make simple options strategy can potentially generate income on stocks you own. Trading OptionTrader Pro Options. Options trading entails significant risk and is not appropriate for all investors.

Certain complex options strategies carry additional risk. Prior to trading options, you must receive from Fidelity Investments a copy trading " Characteristics and Risks of Standardized Options trading by clicking on the hyperlink text, and call FIDELITY to be approved for options trading.

Supporting documentation for any claims, if appropriate, will be furnished upon request. Views and opinions may not reflect those of Fidelity Investments. These comments should not be viewed as trading recommendation for or against any particular security or make strategy.

Views and opinions are subject to change at any time based on market and other conditions. Votes are submitted voluntarily by individuals and reflect their own opinion of how article's helpfulness. A percentage value for helpfulness how display once a sufficient number of votes have been submitted.

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It money a violation of law in some jurisdictions to falsely identify yourself in an call. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail money your behalf. The subject line of make e-mail you send options be "Fidelity. Your e-mail has been sent. Signup for Fidelity Viewpoints Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and call finance.

Related Articles Five ways to research a stock If you like to make your own investment decisions, here are five tools and resources to help analyze a stock. The bull call spread Looking to take advantage of a rising stock price while managing risk? Straddling market options Here's an options strategy designed to profit how you expect a big move.

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