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Guide on Understanding Options, Options Trading, and the Trading Strategies!

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Guide on Understanding Options, Options Trading, and the Trading Strategies!

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When trading in options, start your search with an options premium screener. You will take a calculated risk by taking into consideration the various probabilities and statistics of the market.

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Planning to get into the game for real?

Buckle up, because it's about to be a fun and informative ride getting to know a bit about options!

So, before we even begin talking about the options trading strategies, we must get a grasp on the basics of options.

Shall we begin?

What Are Options?

Equity-listed options are a written contract between a buyer and a seller. They state that the buyer will have the right but is not obligated to buy or sell an asset at a predetermined price before the expiration of the contract. Option buyers have the right to buy shares of stock with a call option and the right to sell shares of stock with a put option. Each option has a predetermined Strike Price and Expiration.

Option sellers collect a premium from the buyer in exchange for the obligation to buy or sell the stock. The option seller keeps the premium whether the option is exercised or expires worthless to the buyer. Pretty straightforward, right?

You can use an options premium screener to determine profit trades. optionDash is a great tool to do just that! See for yourself.

What is Options Trading?

With calls and puts, buying and selling, options trading can quickly sound overwhelming. It will become even more complex combining multiple options together. Today, we want to focus on the basics and what's appropriate for new option traders.

While it can seem complicated in the beginning, you will soon begin to understand that trading with options is not only easy but can fetch a decent profit.

Option Trading Types

We're looking at identifying the two types of options trading:

1. The European Option can only be exercised when you reach the expiry date. Equity indices use this type of options.

2. The American Option can be exercised at any point as long as it falls before the expiry date. This includes exchange-traded funds and stocks.

Neither of these has anything to do with the region you trade from.

Moving on, there are a few terms that will be required when you begin trading in options.

Premium is the price that will be paid to the seller by the buyer of a particular option.

The strike price is the amount at which an options contract can be sold or bought when exercised.

The expiry date is a predetermined date and the last day on which an option holder can exercise their right to buy or sell the asset or security in question.

The stock symbol is used to identify the asset that has been used in the options contract.

Refer to optionDash, a high premium options screener, to know more about the options you plan on trading.

Options Trading Strategies

The trick to being a great options trader is to get the basics right. There are a lot of strategies out there that can help you in trading. Let's take a look at some of the most common strategies used by options traders:

To implement the married puts strategy, one will first have to buy an asset and then purchase a put option for the same number of shares of the asset. When you do this, you get the right to sell off the stock at the strike price giving you downside protection. The reason behind using a married put strategy will be to safeguard yourself in case the stock price was to tumble. Although there's an unlimited potential to gain profit, your losses are limited once the stock price drops below the put's strike price.

What do you think about this options trading strategy? Need more information? Get in touch with us at support@optionDash.com.

The beautiful thing about the covered calls strategy is that it has two parts to it. One, where you buy an underlying asset; and two, where you sell call options for the same asset you just bought. You can earn a profit by selling call options as long as the price of the stock does not go beyond the strike price. You can read more about covered calls here.

Get yourself a covered call screener like optionDash to ensure you're making the right decision at every step of your trading journey.

If you were to purchase a long call and long put option for the stocks of the same asset, at the same time, same strike price and expiration date, then you'd be using the long straddle strategy. Your goal with this strategy will be to gain a profit when a stock makes a strong move up or down in the market. In most cases, the long straddle is used when a newsworthy event happens.

That's all from optionDash for now about options. But before we leave you to trade for yourself, here are a few things you must keep in mind:

When trading in options, start your search with an options premium screener. You will take a calculated risk by taking into consideration the various probabilities and statistics of the market. Make sure you're also taking into account the volatility of the market, historical and implied.

You're going to be trading on different underlying securities, like indexes, equities, or ETFs.

Read more about the commonly used terms in trading. You're going to tap into the world of buying and selling of calls and puts, which could be short or long. They could also be at-the, in-the, or out-of-the-money.

Options trading can only begin when you establish your financial goals.

Keep making efforts to learn and gain experience while trading and investing. If you're not putting in the time and energy to do so, you might fall short of the knowledge required to get desired profits.

Options trading can be simple and fetch incredible profits when understood properly. There's no need to be afraid of it or intimidated by it. Remember what you've read and inferred! And if you're in need of help, optionDash has a screener to get you started.

Good luck!

Posted in Tagged Options and Options Trading | covered calls, option trading, options

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What are Options & What is Options Trading? | optionDash

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Planning to get into the game for real? Buckle up, because it's about to be a fun and informative ride getting to know a bit about options! So, before we even begin talking about the options trading strategies, we must get a grasp on the basics of options. Shall we begin?

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Trading in Options? Avoid these Top 3 Mistakes When Trading

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Trading in Options? Avoid these Top 3 Mistakes When Trading

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Trading stock options has become a very common activity among investors. Let's examine the most common errors to avoid when trading options.

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The trading of equity options has become an incredibly popular vehicle for investors. However, like any investment, options carry inherent risks. An educated investor will often follow a specific method or course of action while trading options, to minimize risks and to generate consistent income.

Let's take a few moments to outline the top mistakes to avoid when trading options.

Top Mistake #1: Option Ignorance

To start with, an investor should be fully educated on all the aspects of options: what they are, how they are traded, and how they function. First, a trader should know the difference between a call and a put.

Call: A call option is a contract giving the buyer the right, but not the obligation, to shares at a predetermined price

Put: A put option is a contract giving the buyer the right, but not the obligation, to shares at a preset price

Next, you must know the difference between buying an option vs. selling. When you an option, you pay a premium, but get the right to decide if the contract will be exercised. If you sell an option you are a premium but have the obligation to fulfill the contract if the option buyer exercises his or her right. When combining calls, puts, buying, and selling, you can quickly see that option trading is more complex than simply trading stocks.

Option investors should also be familiar with some unique terminology that applies only to option trading and option contracts.

The strike price is the price at which shares are bought or sold.

The expiration date is the date on which the option contract expires.

When entering an order, you should pay careful attention that all information related to the contract is entered correctly. You can find all the different strike prices and expirations on the option chain. Not fully understanding these aspects of options or misentering one while trading is one of the most common mistakes of new option traders.

Top Mistake #2: Wild Speculation & Excessive Leverage

Understanding the basics of options is important, but having a plan of action to utilize them in your trading is also key to consistent returns. Investors who do not have a plan for their options trading can be susceptible to the temptation to engage in practices such as speculation or market timing.

Speculation refers to the trading of securities in the belief that the security will have a significant change in price in the short term. Speculators often expect to achieve extremely high returns without a good grasp of the potential risks. While you can get a speculative bet correct from time to time, it is impossible to guess these trades correctly consistently.

Market timing is synonymous with speculation. Countless studies and decades of investment results have proven that no one can time market tops and bottoms consistently. That means you need to create a plan that will work in all the different market conditions.

Frequently, investors will also use options because of their leverage capabilities. Again, this is an attempt to achieve excessive returns with less capital at risk. Since option contracts represent 100 shares, you can quickly control a lot of shares at a fraction of the cost. New option investors can also underestimate the total capital required when trading multiple option contracts. Finally, if the investment in question does not produce the results the investor hopes for, the potential loss that they will suffer can be compounded.

Top Mistake #3: Using Risky Option Strategies

Of course, the importance of having a plan does not mean that every type of plan that a trader can pursue is appropriate. Many options strategies carry significant degrees of risk and are simply inappropriate for most investors. Buying calls and puts have an inherent risk; when you purchase these options, you are essentially betting on whether or not the price of the underlying position will go up (or down). If the desired result fails to occur, you risk losing the premium that you paid for the options that you bought. Buying a single option without holding the underlying stock or using a combination of options is often an all-or-nothing bet.

Selling certain options can also bring risk, however, and in a far greater proportion. Many investors engage in the selling of covered call options, the selling of a call for which you own a bundle of shares that can be sold if the buyer chooses to exercise the option. Covered calls are one of the most common, least risky options strategies. It is a great place for new option traders to start to gain experience.

Some investors, however, engage in the selling of naked calls. This refers to selling a call option when you do not actually own a bundle of shares to cover the option if it gets exercised. Selling a naked call is very risky; the seller is making a bet that the price of the option will not go up (essentially, the opposite of what the purchase of a call option is hoping for). If the price does go up, and the buyer chooses to exercise the option, the seller must purchase a bundle of shares at the current market price and then immediately sell them at the strike price of the option. The strike price will be less than the market price the seller had to pay to purchase the shares; because the price of the shares has no ceiling, the risk for the seller of the naked call is unlimited.

Buying or selling a single call or put is known as a one-leg trading strategy. However, there are also more complex multi-leg strategies that investors can trade. Examples of multi-leg option strategies include straddles (where an investor will buy both a call and put option at the same strike price) or a strangle (where a call and put are bought at different strike prices). Because these strategies involve the purchase of multiple options, the premium paid is increased, as is the risk. Investors should also take time to determine how income or profit will be made off of a multi-leg option trade; most strategies of this type are dependent on a specific sequence of events occurring in order for the trade to be profitable to the investor.

While the above explanation may make it sound like there is a limitless number of pitfalls that can befall an options investor, the reality is far different. Options trading has proven popular with investors due to its reliability and the consistent returns that can be generated. The key to successfully trading options is to adopt an appropriate strategy, learn all the facets of trading it, and trade it consistently over the long term.

Posted in Tagged Options and Options Trading | option trading, options

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Trading Options? Top 3 Mistakes to Avoid When Trading

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The trading of equity options has become an incredibly popular vehicle for investors. However, like any investment, options carry inherent risks. An educated investor will often follow a specific method or course of action while trading options, to minimize risks and to generate consistent income.

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Three Ways You will Lose Money While Making Covered Calls

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Three Ways You will Lose Money While Making Covered Calls

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Understand how covered calls operate, how you can lose money using them, and what you can do to lower your chance of losing money.

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3 Ways You Can Lose Money on Covered Calls

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Covered calls are one of the safest options strategies. After all, the option seller sets the strike price, and the strategy buffers any drop in the underlying stock price. But, of course, covered calls aren't risk-free, and there are several ways you can lose money.

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Are You Prepared to Begin Your Covered Call Option Strategy?

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Are You Prepared to Begin Your Covered Call Option Strategy?

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You may discover how to create your own covered call strategy with covered call options with a little time and research.

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With the current market conditions, investors are looking for ways to mitigate the negative effects of volatility and inflation. For the right investor, a low-risk covered call strategy can be a good inflation hedge.

For the right investor, a low-risk covered call strategy can be a good inflation hedge. Click To Tweet

Most investors that sell covered call options do so to generate extra income from the stocks they own or are interested in purchasing. Because a covered call is less risky than some other ways of trading options, many brokerages allow individual investors to "write" and sell covered calls to boost portfolio income.

If you haven't created a strategy to generate income from covered calls, here are some considerations when setting up your covered call strategy.

What Is a Covered Call?

If you own a stock, you have the right - or option - to sell it at any time for the market price. If you decide to sell this option, you can create an agreement that sets a predetermined stock price (strike price) and an expiration date. In return, the buyer pays you a premium.

A covered call option is a contract that gives the buyer of the call option the right, but not the obligation, to buy a security at an agreed-upon strike price before the expiration date.

The main attraction of selling call options is that the buyer pays a premium upfront. As the seller, you keep the premium regardless of the outcome of the option at expiration. If the buyer doesn't exercise the option before it expires, you have made additional income on that asset without having to sell the underlying shares.

Every covered call option includes these components:

1. The underlying asset.

2. A strike price - an agreed-upon share price for the period of the option.

3. A premium

4. An expiration date.

As we covered, if you write an option call and sell it to a buyer, you are obligated to sell the stock to them at the strike price, should they exercise that option.

That means if you don't already own the stock before they exercise their option, you must purchase it at the market rate and sell it to the option holder for the agreed-upon strike price.

Call options where you don't own the stock before you sell the option are called "naked calls", and they are much riskier than covered calls.

In most cases, the buyer of one call stock option has the right to buy 100 shares of stock. So, to create a covered call, you'll need to own at least 100 shares of stock. You do not need to sell a covered call for all the shares you own, but each option contract will cover 100 shares. If you don't own the underlying shares and sell a naked call, it creates a risk of unlimited losses. This is why it is a very risky strategy and not recommended for most investors.

How profitable are covered calls? That depends largely upon these factors:

Strike Price - Call options with a strike price less than or close to the current price typically have higher premiums since there's a good chance that the buyer could exercise the option.

Implied Volatility - Volatile stocks typically have call options with higher premiums since there's a higher likelihood that the stock moves enough to reach the strike price.

Time Until Expiration - Call options with a long time until expiration trade at higher premiums since there's more time for the underlying stock to move and reach the strike price.

What to Consider When Setting up Your Covered Call Strategy

In context with long-term strategies like the Snider Investment Method, covered calls are part of a strategy that uses a combination of stock, options, and cash, along with specific techniques applied in a specific sequence, to maximize your portfolio's income potential.

One reason covered calls are popular is that they can be a profitable way to generate income from a portfolio without an outright stock sale. Success depends on a range of factors. Here are some things to consider:

1. Possibility of earning repeat premiums: If the option expires and the buyer has not exercised it, you can write additional covered calls for that stock and receive additional premium payments.

2. Risk of losing underlying stock: It seems obvious but in a drive to maximize premiums investors may lose sight of the bigger picture. If you own stock that you don't really want to sell, you probably should avoid writing calls on it.

3. Limits on the upside: with a covered call strategy, you limit the downside risk by the premium received from the option sale. The flip side is that there is also a limit on how much you can earn from an increase in the stock's price. Your upside is capped at the option's strike price.

4. Constraints on the right to sell the stock: For a covered call, you must hold the stock for the duration of the option term. You cannot sell the stock before the option expires.

5. Tax implications for covered calls: Tax implications and reporting for covered calls are complex. Tax planning may make a covered call strategy less appealing depending upon your situation. Net gains and losses on covered calls are treated as short-term capital gains and losses. Gains are taxed like ordinary income. You could end up paying more in taxes than you would with long-term capital gains.
a. Be sure to consult with your accountant and set up your recordkeeping workflow and strategy before you ramp up your activity with covered calls.

How to Start Covered Calls

While there will always be market forces outside of your control, your success largely rests upon how well-informed you are. As an individual investor, you are responsible for the performance of your covered call strategy. But that doesn't mean you need to go through this process alone.

Step One for a Covered Call Strategy Is Education

Since 2002, our parent company Snider Advisors has been teaching investors how to manage a portfolio of covered calls. Financial education and do-it-yourself investments are two pillars of our companies' investment philosophies. Snider Advisors has extensive, high-quality videos and other resources you can access to learn about covered calls and other investment topics, from the basics to more advanced concepts and specifics of how to write covered calls.

Set Your Goals for Your Covered Call Strategy

Every investor is unique. Your covered call strategy should reflect your specific situation, personality, and time available to execute and monitor your strategy.

Covered Call Recordkeeping for Taxes

As mentioned above, recordkeeping for covered calls and tax time can be complex, so be sure to have a system set up to capture the data you will need for tax time before you generate a lot of covered call activity. These days most brokers make tax time easy with all the necessary documentation to report your gains and losses. Finally, you can trade covered calls in retirement accounts that have very few tax reporting requirements.

Research Tools and Screeners for Covered Calls

Writing covered call options requires extensive research. Fortunately, there are tools to help you with that. Choosing the right tool is essential. OptionDash's screener provides unlimited searches and real intraday data without ads. You can get started for free, too.

The Bottom Line

Are you a patient investor with an existing stock portfolio? Do you want to boost the income from your portfolio and reduce the risk? With a little time and research, you can learn the skills necessary to implement a successful covered call strategy. Selling covered calls may be a great "option" for you! Check out Snider's free e-course today and for optionDash's free covered call screener to get started.

Posted in Tagged Covered Call Screener | covered call option, covered calls, generate income, portfolio

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Are You Ready to Start Your Covered Call Option Strategy?

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With the current market conditions, investors are looking for ways to mitigate the negative effects of volatility and inflation. For the right investor, a low-risk covered call strategy can be a good inflation hedge. For the right investor, a low-risk covered call strategy can be a good inflation hedge.

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Are covered calls secure? Consider the Advantages and Disadvantages

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Are covered calls secure? Consider the Advantages and Disadvantages

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In this blog post, the covered call strategy is discussed with regard to risk and profit. Learn how covered calls work, why they might be dangerous, and how to balance risk and profit. Stock screening programs like OptionDash provide helpful tools that speed up your study.

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Covered calls are one of the most popular option strategies for generating portfolio income without taking on a lot of risks. But that said, that doesn't mean the strategy is devoid of any risk. You still have to worry about the risk of the underlying stock falling in value and the potential opportunity costs that may arise if it increases in value.

Let's look at how covered calls work, two key risks to keep in mind, and strategies to optimize your risk/reward.

Covered calls are a relatively safe option strategy, but there are still a handful of risks to remember. Click To Tweet

What Are Covered Calls?

Covered calls are an options strategy where an investor purchases a long stock position and sells a call option against it. For example, you might buy 100 shares of Acme Co. and simultaneously sell one call option covered by the stock. In the end, you would collect the option premiums immediately and only have to sell the stock if the buyer exercises the option.
The covered call's option diagram shows the profit-loss profile. Source: The Options Guide
Many investors write call options against stock they already own to generate extra income beyond dividends. They may even use call options to sell their long stock positions by writing options with strike prices equivalent to their take-profit or sell targets. In other cases, investors use buy-write strategies purely to generate maximum income.

Covered Call Risks

Many options strategies involve a significant amount of risk. For example, you can quickly lose your entire investment if you purchase out-of-the-money call options. And worse, you can lose much more than your original investment if you write naked options. Fortunately, covered calls are less risky than these strategies but keep in mind they're not risk-free.

Like any long stock position, you can lose money if the stock price drops below the breakeven point (e.g., the purchase price minus any option premiums) since you still own it. For instance, suppose you bought 100 shares of Acme Co. for $10 per share and sold $0.10 call options. If the stock fell to $5.00, you would still lose $490 (e.g., $500 - $10).

On the other hand, if the stock price rises beyond the strike price, there's also the opportunity cost of missing out on a rally since the buyer would exercise the option. Using the previous example, if the stock price rose to $15 and the strike price for the option was $11, you would miss out on $300 of potential capital gains (e.g., $400 - $100).

Reducing Downside Risk

The biggest risk of a covered call strategy is the underlying stock falling sharply in value. Not surprisingly, the best way to mitigate that risk is to select stocks that are less likely to fall in value. And that typically means looking at fundamental factors, like revenue growth and profitability, and technical characteristics, like beta coefficients.

Low beta coefficient. Beta coefficients measure a stock's historic volatility relative to the S&P 500 index. Readings below 1.0 suggest that a stock is less volatile than the benchmark index and less likely (by historical standards at least) to fall in value dramatically (although option premiums may be lower).

Debt-to-equity ratios. The debt-to-equity ratio tells you how much debt a company holds relative to its market valuation. Readings above 1.0x could be problematic since the company's interest payments are likely quite high, and of course, shareholders are usually last to get paid out if a company goes bankrupt.

Free cash flow yield. Free cash flow is one of the most reliable metrics for investors assessing income and profitability. Free cash flow yield looks at the free cash flow per share divided by the current share price. Higher readings suggest that companies are generating ample cash and are at less risk of solvency problems.

Downside risk protection. Downside risk protection represents how much downside risk you offset with the option premium. For example, a $1.00 option on a $10 stock offers 10% downside risk protection and might be less risky than a $0.50 option on a $10 stock offering only 5% downside risk protection.

There are several ways to evaluate opportunities:

Finally, in addition to these factors, you should mitigate stock-specific risks. That way, if one stock or sector experiences problems, it doesn't necessarily impact other parts of your portfolio. Most diversified portfolios hold between 20 and 30 stocks, which strikes a good balance between picking good opportunities and remaining diversified.

Managing Rising Prices

The second risk of a covered call strategy is the opportunity cost if the stock price increases. While that's not a bad problem, since you're selling at a gain and keeping the option premium as income, you may want to hold on to the stock. For instance, you might want to avoid paying short-term capital gains taxes by selling or believing prices will increase further.

Many beginners make the mistake of selling covered call options with the highest premiums (e.g., a strike price close to the current price). But these are often the options buyers who are most likely to exercise, and you miss out on any potential capital gains above the strike price. So, the first step is to look at the overall picture rather than the premium.
optionDash makes it easy to screen for opportunities by downside protection, if-called return, or other metrics. Source: optionDash

If-called return. The if-called return is the annualized net profit of a covered call, assuming the stock price is above the strike price at expiration, and the stock is sold and assigned at expiration. In other words, it's the worst-case bull scenario.

If-unchanged return. The if-unchanged return is the annualized net profit assuming the underlying stock remains at its current levels at expiration and remains in your portfolio. You might look at this to see if the option premium alone is worth the return.

You can look at a couple of different metrics to find the best opportunities:

If the stock price does rise above the strike price, and you don't want to sell the stock, you can roll up or roll out the covered call. This process involves closing out the original option with a buy-to-close order and replacing it with another covered call. The only drawback is that the cost to close your original option may be higher than the premium you originally collected.

The Bottom Line
Get started for free today!
Covered calls are a low-risk option strategy capable of generating income, but that doesn't mean they're without risk. Fortunately, you can mitigate downside risk and opportunity costs by looking at factors like downside protection and if-called returns. And tools like optionDash make it incredibly easy to access this data at your fingertips.

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Are Covered Calls Safe? Pros & Cons to Consider

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Covered calls are one of the most popular option strategies for generating portfolio income without taking on a lot of risks. But that said, that doesn't mean the strategy is devoid of any risk. You still have to worry about the risk of the underlying stock falling in value and the potential opportunity costs that may arise if it increases in value.

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In this blog post, covered call strategy were explored in relation to dividend-paying equities. We also discussed some of the dangers of employing this tactic. Stock screening services like OptionDash provide useful features that can speed up your study. Contact our partners at Snider Advisors to have a talk if you're thinking about this plan and need some assistance.

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As you learn more about covered calls, you will come across information about using dividend stocks to write covered calls. Much of the strategic opportunity - and risk - lies in understanding the timing of dividends. This post covers the basics of dividend timing and the ins and outs of using dividend stocks with covered calls.

As a refresher, a covered call is a type of options strategy that involves selling call options on a stock you already own. By selling the call option, you agree to provide the buyer with the right to purchase your stock at a specified price within a specific time.

The fact that you own the stock already is what "covers" the call - you aren't exposed to the risk of having to go buy the stock if the buyer decides to exercise their option. Covered calls can be a way to generate premium income from stocks that are unlikely to see much price movement in the near future.

You can read more about the basics of setting up a covered call strategy in our post Start Your Own Covered Call Strategy.

Writing covered calls on dividend stocks is a popular strategy since it increases the shareholder's income above just the dividend yield. Click To Tweet

Writing covered calls on dividend stocks is a popular strategy since it increases the shareholder's income above just the dividend yield. Over the last few decades, the dividend yield on the S&P 500 has been around 2%. For investors needing an income boost, layering covered calls on top of dividend stocks can greatly improve your annual income.
While the strategy seems logical; the challenge is that markets tend to be efficient and price the options ahead in anticipation of the dividend payment.Understanding the impact of dividend dates and option pricing is critical to a successful strategy.

To understand this strategy better, let's review the timing of dividends.

Important Dates for Dividend Stock Investors

As you know, dividend stocks pay regular dividends to investors who own those stocks.

Dividend stocks from established companies are relatively stable and less likely to experience sharp price swings. Their low volatility makes them an appealing choice for investors looking for income and stability.

For investors interested in buying dividend stocks, understanding dividend dates are essential. Here are the basic terms and what they mean:

Declaration date: the declaration date is the day the board of directors declares a dividend.

Ex-dividend date: Any new investors who purchases the stock on or after the ex-dividend date will not be eligible to receive the upcoming dividend payment. The term ex-dividend refers to a stock trading without the value of the next dividend payment.

Record date: For most companies, the record date falls two business days after the ex-dividend date.

Payment date: the date when shareholders receive payment. The payment date is typically several weeks after the record date.

Knowing the timing of dividends helps investors plan to ensure they are eligible to receive upcoming dividend payments.

How Do Dividends Impact Option Pricing?

Dividends impact the price of call and put options. As shown above, when a company declares and pays a dividend, shareholders must purchase shares before the ex-dividend date to receive the upcoming dividend payment. All else being equal, the dividend reduces the value of the underlying stock by the dividend amount on the ex-dividend date.

The reduction in value also affects call and put option premiums since they are based on the underlying stock price. At the money call options will generally decrease by an amount equal to the dividend, while at the money put prices will increase by an amount equal to the dividend. You can read more about an option's delta to better understand how the movement of a stock's price impacts the option prices.

Before a dividend payment, the cash is on the company's balance sheet. As a result, it is also factored into the stock's market price. On the ex-dividend date, the funds move from an asset on the balance sheet to a liability owed to its shareholders. Since most companies have a consistent dividend payment, the market price of the option prices factor in this cash flow.

It is important to consider how dividends may impact your option strategies before making trades. Comparing put and call prices on the same option chain near a dividend payment can look very odd without considering the dividend payment.

Dividends and Options Assignment Risk

Dividend payments are one of the most common reasons for an early assignment with covered calls. The option buyer can exercise the option any time prior to expiration. If the call is currently in-the-money but the dividend payment will cause the market price to drop below the strike price, you are at a high risk of an early assignment.

Remember you must own the shares prior to the ex-dividend date to receive the payment. When the option buyer exercies their option, you are forced to sell your shares at the strike price. If they do this before the ex-dividend date, you will be forced to sell your shares and miss out on the dividend payment. Closing your covered call prior to the ex-date or verifying the strike is well out-of-the-money is the best way to avoid an early exercise.

You can do a few things to reduce the risk of being assigned early on an option trade.

First, ensure you know if the underlying security pays a dividend and when that dividend will start trading ex-dividend.

Deep in-the-money or out-of-the-money covered calls are less impacted by dividend payments

Avoid selling options on stocks or ETFs with an expriation near the ex-dividend date

Pros and Cons of Covered Calls with Dividend Stocks

Experts don't always agree on the wisdom of writing calls on stocks with high dividend yields. Some experienced options traders endorse this strategy, believing it makes sense to generate the maximum possible yield from a portfolio at all times.

Others argue that the risk of the stock being "called away" is not worth the small premiums possible from writing calls on a stock with a high dividend yield.

The blue-chip stocks with high dividends are usually in sectors like telecoms, financials, and utilities. This is because the high dividends lead to less volatility in stock prices, which in turn means that option premiums are lower. With optionDash's advanced screening criteria, you can set both a minimum and maximum dividend yield to find stocks meeting your specific needs.

The Bottom Line

This blog post discussed covered calls and how they work with dividend-paying stocks. We also outlined some of the risks associated with using this strategy. Stock screeners like OptionDash offer valuable tools to save time in your analysis. If you're considering this strategy and would like some help, reach out for a conversation with our partners at Snider Advisors. They also have a library of free resources to take a deeper dive.

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As you learn more about covered calls, you will come across information about using dividend stocks to write covered calls. Much of the strategic opportunity - and risk - lies in understanding the timing of dividends. This post covers the basics of dividend timing and the ins and outs of using dividend stocks with covered calls.

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Choose the best covered screening tools - OptionDash

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Choose the best covered screening tools - OptionDash

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OptionDash is a place where you will find all the solutions for best covered call screening tools. Here you can start your own covered call strategy with best screening tools.

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Creating a watchlist is nothing new, but have you seen one focused on covered calls? Our covered call watchlist allows you to save your favorite stocks and quickly decide if now is the right time to write calls.

On one page, you can quickly see our proprietary ratings, upcoming dividends, earnings, and downside protection. Switching between expirations, you can easily decide which works best for your favorite stocks.

Saved Searches

You have a unique set of search criteria. Whether it is complex or simple, you can set your advanced screening criteria and save them for future use. Selling covered calls is an ongoing operation. With optimal income from short-term expirations, you must keep an eye on the market for the best income earners. With our saved search feature, you will spend less time searching for the next trade.

The tools covered call traders want, built by professional covered call traders.

Covered Call Chains

An option chain devoted to covered calls gives you all the important information to help you make your next decision. It is most common to look at the data by expiration, but with , you can drill-down to see the same information by strike across multiple expirations.

Our covered call option chains have everything you need including: premium, downside protection, premium of strike, return if assigned, return if flat, implied volatility, delta, and theta.

Sometimes you just want to know a little bit more about a stock. In the past, that meant you had to pull up Yahoo Finance, Google Finance, or try to find more information at your broker. Now, you can find all the information you need right on option Dash . Our Research page starts with an easy to read chart and a full description of the company.

Digging deeper, you will find the option Dash Proprietary Stock Scoring System above the Key Metrics and a drawdown chart. Below that, you can find all the latest news and headlines about the stock.

On the Research page, you will also find information on Dividends, Volatility, Valuation, and Analyst Ratings.

Dividends - See the historical dividend yield and the payment over time

Volatility - 30 Days of At-the-Money Implied Volatility and the Implied Volatility Rank

Valuation - Breakdown the current price based on many valuation methodologies including historical comparison, PE Method, PS Method, Discounted Cash Flow, Return on Assets, Price to Equity, Return on Equity, Debt to Equity, and Price to Book.

Analyst - See what top Analysts think of the stock. It includes a composite rating and a breakdown of how many rate it a Buy, Hold, or Sell.

The best covered calls tool for income investors. Screen stock and options data to find income-producing covered call trades.

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Covered Calls for Income | Covered Call Screening Tools | optionDash

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Creating a watchlist is nothing new, but have you seen one focused on covered calls? Our covered call watchlist allows you to save your favorite stocks and quickly decide if now is the right time to write calls. On one page, you can quickly see our proprietary ratings, upcoming dividends, earnings, and downside protection.

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What to Know When Selling Covered Calls for Income.

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What to Know When Selling Covered Calls for Income.

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Investors looking for ways to increase portfolio income other than selling stock may want to consider implementing a covered call strategy. Let’s review the basics of a covered call and look at the ins and outs of how to sell them to generate covered call income.

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Investors looking for ways to increase portfolio income other than selling stock may want to consider implementing a covered call strategy. Let's review the basics of a covered call and look at the ins and outs of how to sell them to generate covered call income. We'll look at choosing the right stock, selecting the right option, and managing the trade.

What Is a Covered Call?

The intent of a covered call strategy is to generate income on an owned stock that you do not expect to increase much in price during the term of the options contract.

A call option is a contract that gives the holder (buyer) the right, but not the obligation, to buy a security at a specified price for a certain period of time before the expiration date. The seller receives an option premium up front. In most cases, the buyer of one call stock option has the right to buy 100 shares of the underlying stock.

The main benefit of covered calls is they allow investors that sell covered call options to generate income from their portfolio without an outright sale of the underlying stock. The buyer pays a premium upfront.

The seller keeps the premium regardless of the outcome of the option at expiration. If the buyer doesn't exercise the option before it expires, the owner of the stock makes additional income on that asset without having to sell the underlying asset.

Covered calls are called "covered" because the seller owns the underlying stock. If they didn't, and the buyer exercised their option, the seller would have to purchase the stock at market rate and sell it to the option holder for the agreed-upon strike price. Writing an option on a stock you don't own is called a "naked call" and it is much riskier than covered calls.

Covered calls may be part of a broader strategy to generate cash from an investment portfolio. You can even use covered calls to increase your IRA income.

The Snider Investment Method from Snider Advisors is a strategy that uses a combination of stock, options, and cash, along with specific techniques applied in a specific sequence, to maximize a portfolio's income potential.

How to Sell Covered Calls

The basics of selling covered calls involves choosing the stock, selecting the right covered call option, and monitoring the trade. As you will see, there are many moving parts to setting up your strategy for selling covered calls.

Call Screeners for Covered Calls

Investors today can take advantage of helpful tech tools that were not available in years past. Call screeners like optionDash are a great example. A covered call screener is a dashboard that allows you to set filters for selecting stock, strike prices, and expirations for your ideal covered call. This helps you quickly compare many different stocks in a way that would be extremely time consuming to keep up with in a spreadsheet.

The basics of selling covered calls involves choosing the stock, selecting the right covered call option, and monitoring the trade. Click To Tweet

Choosing the Right Stock for Covered Calls

Investors can write covered calls against any position where they own at least 100 shares. While the goal is to keep the premium and the stock, there is a risk you will have to sell the stock to the option holder if the buyer exercises the option.

Therefore, it may seem obvious but you may want to avoid writing options for stocks you want to keep, or if you are not ready for capital gains tax implications if the price ends above the call's strike price.

Similarly, if you are selecting stocks to buy to write covered calls, consider choosing stocks that you don't mind having a long position with in case the value decreases. It's also a good idea to consider the timing of events that might impact the price such as an upcoming dividend payment or earnings announcement.

There are many metrics to consider when selecting stocks for covered calls. Mastering selecting stocks for covered calls requires some patience and a lot of practice.

As we mentioned above, covered call screeners are the easiest way to compare stocks. optionDash is a comprehensive screener that enables sorting by downside protection, if-called return, or annualized return. We also provide proprietary Quality, Value, and Trend scores to quickly evaluate the underlying stock.

Choosing the Right Covered Call Option

Every option has a strike price and expiration date. Investors manipulate those variables to reflect lower and higher levels of risk and income.

Long-term investors may choose to minimize the risk of losing the stock and often prefer out-of-the-money options. Investors looking to maximize income and downside protection may prefer in-the-money or at-the-money covered calls.

Similar to picking stocks, choosing the covered call variables involves some complexity. Screeners like optionDash not only help you choose stocks for covered calls, but also helps you select the best strike prices and expiration dates. You can compare metrics to determine the right risk/reward combination for your situation.

Managing the Covered Call Trade

Long-term investing requires a buy-and-hold mentality. For those new to covered calls, implementing a successful strategy may require some adjustment for investors not used to frequently checking in with their portfolio.

In general, you will see most of the activity on covered calls in the final week leading up to expiration. However, anytime stock prices change unexpectedly investors need to be aware so they can consider taking action.

If a stock increases suddenly, you may need to buy back the option to avoid having to sell it and triggering a capital gains tax event. If the stock falls, you need to decide if they are going to sell it or hold onto it. When the stock prices move in unexpected ways, investors may look at options for "rolling" the covered call.

Much like it sounds, when you roll a call, you close out the initial call with a buy-to-close order and sell another one to replace it at the same time. Conceptually, this is like rolling the first covered call into a new one. Different types of rolling depend on changes to strike price, and expiration date.

Rolling up is closing out the existing call option and selling another with a higher strike price.

Rolling out is buying to close the current call option and selling another on the same stock and strike price, with an expiration date further out in the future.

Rolling down is buying to close an existing call and selling another covered call on the same stock and with the same expiration date at a lower strike price.

Rolling up and out is buying to close an existing covered call and at the same time selling another with a higher strike price and later expiration date.

Rolling down and out is buying to close an existing covered call and at the same time selling another with a lower strike price and later expiration date.

The Bottom Line

Learning how to choose stocks, write covered calls, and manage your trades takes time and learning. Learning the fundamentals is key.

For more in-depth strategies, you can check out resources like The Snider Investment Method from Snider Advisors to create a comprehensive strategy that covers all the bases. Tools like our optionDash screener and Lattco help you compare stocks and make the best investment choices.

If you are interested in a covered call strategy for earning income from your portfolio but you don't have time to manage the process, Snider Advisors also provides a done-for-you solution via their asset management services. Contact them for a free consultation to learn more.

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What to Know When Selling Covered Calls for Income

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Investors looking for ways to increase portfolio income other than selling stock may want to consider implementing a covered call strategy. Let's review the basics of a covered call and look at the ins and outs of how to sell them to generate covered call income.

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Basics of What to Consider While Selecting Stocks for Covered Calls.

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Basics of What to Consider While Selecting Stocks for Covered Calls.

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The most important aspect of any investment strategy is stock selection. Learn about the basic and importance of selecting the stocks for covered calls. Also learn about the tools to simplify and speed the stock screening process.

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Picking the best stocks to sell for covered call strategies is an ongoing activity for investors hoping to draw income from an existing portfolio.

The most important aspect of any investment strategy might be stock selection. Not all stocks will make good covered call candidates. For example, a stock that you believe will increase in price significantly would make a poor covered call stock. We encourage investors to use stocks with strong fundamentals. Using companies you believe are a good long-term hold makes your covered call income the boost you need to outperform.

As with most financial decisions, your personal investing goals determine the best covered call stocks for you. Let's look at some typical ways to pick the right stocks for covered calls. We'll also learn about some tools to help simplify and speed up the process of screening for stocks.

Covered Call Stock Picks for Long Investors

A covered call is a popular strategy to generate income from stocks whose prices investors think are unlikely to rise much further in the near term. A logical place for long investors to start may be to write covered calls on stocks from companies with relatively stable prices they already own or wish to own.

Remember when you sell a call option, the buyer pays the premium upfront, which you keep regardless of what happens with the stock. You won't gain any upside beyond the strike price, and the premium income will offset some of your losses if the stock falls. Stocks with low volatility represent less likelihood for both large up or down price movement.

Be aware of your timing when writing a call option, even with a long-term hold. Upcoming dividend and earnings dates can lead to increased volatility. It is preferable to avoid the situation where the call option moves into the money and you may have to either buy back the option or give up the stock, which may have a tax consequence.

Stock Picks for Income: Using Covered Calls

Retirees using their portfolio to support their living expenses are often concerned with pulling income out of their portfolios without selling the stock. Maximizing income potential when writing call options can support higher withdrawal rates translating into more money to live. For this reason, they typically perform more research and juggle more variables when making their picks.

A common strategy that traders use when seeking the best stocks for covered calls is to take a closer look at volatility as an indicator. They try to get a sense of the current market sentiment compared with past volatility.

Market sentiment is interesting because it refers to the psychological factor in the markets and tends to reflect the overall market performance. As you might expect, market sentiment is bullish when prices are rising and bearish when prices are falling.

In an industry dominated by data, traders use a couple of market sentiment metrics in an attempt to quantify subjective influences. Income investors compare implied volatility (IV)-a proxy for market sentiment-with historical realized volatility (HV).

When implied volatility generally runs ahead of historical volatility over a given term, covered calls on the stock generate an abnormally high level of income. Traders also take into account adjustments for earnings, dividends, or other factors that can influence volatility.

Two more metrics that help traders with risk-reward tradeoffs are downside protection and if-called return. The if-called return is the return that you'd realize if the call option holder calls the stock. The downside protection is how much the option premium offsets losses in the underlying stock.

The challenge for investors is to capture an overall view of the different metrics in a way that allows them to quickly compare different stocks. Luckily, today's investor has tools at their fingertips that investors just a few years ago could not access.

Tools To Simply Picking Covered Call Stocks

Depending upon your investment strategy, picking stocks requires an overall sense of market movements and stock-specific granular metrics.

Investors need a way to quickly compare stocks and screen them for the ideal criteria for their covered call strategy. Click To Tweet

The good news is that tools exist to help you do just that. The OptionDash stock screener has a clear, easy-to-use interface that is purpose-built for buy-write and covered call strategies.

Users can set criteria ranging from market cap, various fundamental ratios, and optionDash's proprietary scores. This unique scoring system has three values: Value, Trend, and Quality. Each score helps you determine important attributes many investors consider including the valuation situation of the underlying stock, whether it's trending higher or lower, and even the potential risk of bankruptcy. OptionDash also has a powerful sorting function to sort by all the common covered call metrics including if-called returns, downside protection, and more. Investor intel like these metrics can save you time and may help improve your outcomes. You can easily familiarize yourself with the interface by getting started for free!

Finding the right stock to buy for a covered call strategy is a critical first step, but there is more to covered calls than picking a stock and selling a call option. Investors need to decide on allocations, strike prices, and expirations. If you are looking for an experienced approach to buying stocks from well-run, solvent companies to generate options income, the Snider Investment Method®, offers a roadmap. They even offer a free course, Stock Selection 101, to get you started.

Snider Advisors also created Lattco, a proprietary software tool, and platform that makes it easy to execute trades automatically, generate portfolio reports, and ensure that you have the right level of diversification.

The Bottom Line

For investors new to covered call strategies, picking stocks may feel confusing at first. Sometimes the best approach is to go slow now to move faster later. In other words, spend time learning the fundamentals. Familiarize yourself with the online tools for covered call investors.

Resources such as Snider Advisors' free courses can also help you learn the fundamentals. Tools such as optionDash and Lattco can help save time and compare stocks to make better choices.

If you'd rather avoid the time and effort of finding opportunities, Sinder Advisors provides a done-for-you solution via their asset management services. Contact them for a free consultation to learn more.

Posted in Tagged Investing | covered calls, selling stocks, stock selection

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Basics for Selecting Stocks for Covered Calls

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Picking the best stocks to sell for covered call strategies is an ongoing activity for investors hoping to draw income from an existing portfolio. The most important aspect of any investment strategy might be stock selection. Not all stocks will make good covered call candidates.

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All You Need to Know about Covered Call Strategy for Option trades.

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All You Need to Know about Covered Call Strategy for Option trades.

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Learn how to start your own covered call strategy with the use of covered call options. A low-risk covered call strategy can serve as an inflation boundary for the right investor. Investing in a covered call strategy that is low risk is a good way to operate an inflation boundary for the right investor.

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With the current market conditions, investors are looking for ways to mitigate the negative effects of volatility and inflation. For the right investor, a low-risk covered call strategy can be a good inflation hedge.

For the right investor, a low-risk covered call strategy can be a good inflation hedge. Click To Tweet

Most investors that sell covered call options do so to generate extra income from the stocks they own or are interested in purchasing. Because a covered call is less risky than some other ways of trading options, many brokerages allow individual investors to "write" and sell covered calls to boost portfolio income.

If you haven't created a strategy to generate income from covered calls, here are some considerations when setting up your covered call strategy.

What Is a Covered Call?

If you own a stock, you have the right - or option - to sell it at any time for the market price. If you decide to sell this option, you can create an agreement that sets a predetermined stock price (strike price) and an expiration date. In return, the buyer pays you a premium.

A covered call option is a contract that gives the buyer of the call option the right, but not the obligation, to buy a security at an agreed-upon strike price before the expiration date.

The main attraction of selling call options is that the buyer pays a premium upfront. As the seller, you keep the premium regardless of the outcome of the option at expiration. If the buyer doesn't exercise the option before it expires, you have made additional income on that asset without having to sell the underlying shares.

Every covered call option includes these components:

1. The underlying asset.

2. A strike price - an agreed-upon share price for the period of the option.

3. A premium

4. An expiration date.

As we covered, if you write an option call and sell it to a buyer, you are obligated to sell the stock to them at the strike price, should they exercise that option.

That means if you don't already own the stock before they exercise their option, you must purchase it at the market rate and sell it to the option holder for the agreed-upon strike price.

Call options where you don't own the stock before you sell the option are called "naked calls", and they are much riskier than covered calls.

In most cases, the buyer of one call stock option has the right to buy 100 shares of stock. So, to create a covered call, you'll need to own at least 100 shares of stock. You do not need to sell a covered call for all the shares you own, but each option contract will cover 100 shares. If you don't own the underlying shares and sell a naked call, it creates a risk of unlimited losses. This is why it is a very risky strategy and not recommended for most investors.

How profitable are covered calls? That depends largely upon these factors:

Strike Price - Call options with a strike price less than or close to the current price typically have higher premiums since there's a good chance that the buyer could exercise the option.

Implied Volatility - Volatile stocks typically have call options with higher premiums since there's a higher likelihood that the stock moves enough to reach the strike price.

Time Until Expiration - Call options with a long time until expiration trade at higher premiums since there's more time for the underlying stock to move and reach the strike price.

What to Consider When Setting up Your Covered Call Strategy

In context with long-term strategies like the Snider Investment Method, covered calls are part of a strategy that uses a combination of stock, options, and cash, along with specific techniques applied in a specific sequence, to maximize your portfolio's income potential.

One reason covered calls are popular is that they can be a profitable way to generate income from a portfolio without an outright stock sale. Success depends on a range of factors. Here are some things to consider:

1. Possibility of earning repeat premiums: If the option expires and the buyer has not exercised it, you can write additional covered calls for that stock and receive additional premium payments.

2. Risk of losing underlying stock: It seems obvious but in a drive to maximize premiums investors may lose sight of the bigger picture. If you own stock that you don't really want to sell, you probably should avoid writing calls on it.

3. Limits on the upside: with a covered call strategy, you limit the downside risk by the premium received from the option sale. The flip side is that there is also a limit on how much you can earn from an increase in the stock's price. Your upside is capped at the option's strike price.

4. Constraints on the right to sell the stock: For a covered call, you must hold the stock for the duration of the option term. You cannot sell the stock before the option expires.

5. Tax implications for covered calls: Tax implications and reporting for covered calls are complex. Tax planning may make a covered call strategy less appealing depending upon your situation. Net gains and losses on covered calls are treated as short-term capital gains and losses. Gains are taxed like ordinary income. You could end up paying more in taxes than you would with long-term capital gains.
a. Be sure to consult with your accountant and set up your recordkeeping workflow and strategy before you ramp up your activity with covered calls.

How to Start Covered Calls

While there will always be market forces outside of your control, your success largely rests upon how well-informed you are. As an individual investor, you are responsible for the performance of your covered call strategy. But that doesn't mean you need to go through this process alone.

Step One for a Covered Call Strategy Is Education

Since 2002, our parent company Snider Advisors has been teaching investors how to manage a portfolio of covered calls. Financial education and do-it-yourself investments are two pillars of our companies' investment philosophies. Snider Advisors has extensive, high-quality videos and other resources you can access to learn about covered calls and other investment topics, from the basics to more advanced concepts and specifics of how to write covered calls.

Set Your Goals for Your Covered Call Strategy

Every investor is unique. Your covered call strategy should reflect your specific situation, personality, and time available to execute and monitor your strategy.

Covered Call Recordkeeping for Taxes

As mentioned above, recordkeeping for covered calls and tax time can be complex, so be sure to have a system set up to capture the data you will need for tax time before you generate a lot of covered call activity. These days most brokers make tax time easy with all the necessary documentation to report your gains and losses. Finally, you can trade covered calls in retirement accounts that have very few tax reporting requirements.

Research Tools and Screeners for Covered Calls

Writing covered call options requires extensive research. Fortunately, there are tools to help you with that. Choosing the right tool is essential. OptionDash's screener provides unlimited searches and real intraday data without ads. You can get started for free, too.

The Bottom Line

Are you a patient investor with an existing stock portfolio? Do you want to boost the income from your portfolio and reduce the risk? With a little time and research, you can learn the skills necessary to implement a successful covered call strategy. Selling covered calls may be a great "option" for you! Check out Snider's free e-course today and for optionDash's free covered call screener to get started.

Posted in Tagged Covered Call Screener | covered call option, covered calls, generate income, portfolio

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Are You Ready to Start Your Covered Call Strategy?

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With the current market conditions, investors are looking for ways to mitigate the negative effects of volatility and inflation. For the right investor, a low-risk covered call strategy can be a good inflation hedge. For the right investor, a low-risk covered call strategy can be a good inflation hedge.

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What is Cash Secured Put Screener? | Cash Covered Put Screener

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What is Cash Secured Put Screener? | Cash Covered Put Screener

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Looking for free cash secured and cash covered put screener online? Switch to optionDash to sell your cash secured put options and generate more income.

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What Is a Cash Secured Put Screener?

If your first options trade was a covered call, your next will be cash secured put.

A cash secured put screener is a tool that can be used to scan market data for income-producing cash secured put options. The user can choose from various criteria and filters (such as a range of prices for the underlying stock, strike prices, expiration dates, and stock fundamentals) to find their optimal position.

Based on the criteria, the screener will then return a list of stock positions, showing data such as the current market price, the available strike prices for the put options, the bid and ask prices for the put options at present, and downside protection.   Based on this data, an investor can then determine if a particular put option is a good addition to their portfolio.  Comparing the income earned against the risk of a stock price decline and stock ownership will allow users find the best cash secured puts.

On top of the best covered call screener available, a premium subscription to optionDash includes access to our cash secured put screener.  You can use our advanced screening criteria and optionDash scoring systems to find your ideal cash secured put. Now you must be thinking what is a cash secured put?

Nearly identical to covered calls, you can generate income with cash secured put.  On this trade, you sell a put option while setting aside all the cash necessary to buy the stock using our cash secured put screener. In most cases, investors begin with an out-of-the-money put so that the share price has to decline in order to be assigned.  The ideal scenario is that the shares stay the same price (like covered calls), and you simply collect the premium without ever owning the shares.

Most traders just use their covered call screener or covered put scanner for their cash secured puts search.  With optionDash, you can specifically search for the best cash secured puts available.  Dividend payments are the biggest factor affecting call and put premiums differently.  You don’t have to worry about it when using our cash secured put screener.

Difference Between Cash-Secured Put Screener & Cash Covered Call Screener

A cash-secured put screener and a cash-covered call screener offer many of the same functions. They both generally allow users to input criteria to generate a list of options that they might wish to trade. Both strategies give an investor ways to boost income from their portfolio.

The main difference is in the type of options searched for. Cash-secured puts are a contract binding the seller to purchase shares at the pre-determined strike price, while covered calls bind the seller to sell shares at the strike price. Covered calls require you to already own shares of the underlying stock.  For cash secured puts, you could be assigned shares if the market price drops below the strike price before the expiration.

Cash secured puts are a great strategy if you’d like to buy more shares if the price declines.  Rather than simply hope for a price drop, you can sell a cash secured put.  You will be paid for the option sale and only purchase shares if the stock price declines below the strike price you’ve chosen.

Another difference comes in references to an option being “out of the money.” For a cash-secured put, this refers to a strike price that is lower than the current market price for the underlying stock. For a covered call, this is a strike price that is higher than the current market price for the stock. Understanding “out of the money” is important when entering your search criteria for both cash secured put and covered call screeners.

How to Sell Cash Secured Puts?

After locating a cash secured put option that you wish to sell, the next step would be to go to your brokerage account and enter a “Sell-to-Open” option order. If you are only selling one type of put option (i.e. all at the same strike price and on the same expiration date), you can utilize the simplest option order form on your brokerage site; these are frequently referred to as “Basic” or “one-leg” order forms.

On the order form, you will generally be asked first to enter the ticker symbol of the underlying stock position. After doing so, you will be asked to enter pertinent information for the order, including the type of option (in this case, a put), the strike price you are selling the put at, the expiration date for the option, the quantity of the option that you are selling.  Keep in mind, options trade in contracts not shares.  Each contract represents 100 shares of the underlying stock.

On the option order form, you can choose to sell the option at the current market price (the bid price), or you can attempt to sell it at a limit price. Market orders should execute immediately at or near the bid price.  Limit orders require a certain premium before execution.  Limit orders may not execute if an option buyer is not willing to pay the set premium.

If there is a wide difference between the bid and ask prices for an option (which represent the maximum prices that a buyer and seller, respectively, are willing to pay for it), you can also enter a limit order and attempt to sell the option for a price that is higher than the bid price, but lower than the ask price. This allows investors to minimize the spread and maximize the premium received for the option sale.

After placing the order, you will want to ensure that it has filled. Brokerages will generally offer an “order status” screen for you to check to see if an order has been executed or not. Selling cash-secured puts at the market price will generally result in orders being filled instantaneously. Selling at a limit price, however, may take more time. If an order has not filled after a set period of time, the seller may wish to modify the order and attempt to sell the option at a lower limit price, or at the market price.

How Are Cash Secured Puts Similar to Covered Calls?

You sell-to-open both options

You receive a premium (or income) from both trades

How Is a Cash Secured Put Different From Covered Calls?

You own the stock when selling a covered call.  You can own the stock when selling puts, but you aren’t required to.  Instead, you have to have the cash available to purchase the shares.

The basic difference between Cash secured put vs Covered call is that with covered calls, you will be assigned if the price goes above the strike price of the call.  The opposite is true for puts.  You will be assigned if the price drops below the strike price of the put.

Many traders love to use puts to start a covered call position.  They will sell puts until assigned, and then use those shares to sell covered calls.  This is often referred to as the options wheel strategy.  They are also useful if you believe the shares are more attractive at a lower price.  You can sell puts and collect a premium even if the share price never declines. Setting up cash covered put screener is easy.

Cash Secured Put vs Covered Call, Which Is Better?

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Free Cash Secured Put Screener | Cash Covered Put Screener

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Looking for free cash secured and cash covered put screener online? Switch to optionDash to sell your cash secured put options and generate more income.

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Covered Calls for Income - Tools for Income Investors

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Covered Calls for Income - Tools for Income Investors

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Free Covered Call Screener

Screen stock and option data to find income-producing covered call trades.

Start Screening for Free

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Create an Account and Verify Your Email

Once you create an account, our screener is free to use. It uses real intraday market data to provide actionable covered call ideas.

Choose Your Screening Criteria

You have access to various different screening filters to find your perfect covered call stock. Along with daily stock and option data, you can also apply fundamental and proprietary scoring systems.

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The data returned in our covered call screener is a raw list of stock and call combinations sorted by their income potential. Additional factors should be considered before purchasing a stock from the list. You should consider risk, timeframe, investment objectives, diversification, and a company's financial health. Our proprietary stock screener, Lattco, includes many additional screens to ensure each investment is appropriate for our clients. This tool is available exclusively to graduates of the Snider Investment Method course.

Unique ETFs include additional risks. Factors that make them "unique" include Futures based, leverage, or inverse (short) an asset. We generally recommend that investors avoid these securities. We hope to highlight all unique securities, but with new ETFs created every day, it is possible for one to be inadvertently missed.

The data returned by this free covered call screener is for information and educational purposes only. It is not a recommendation to buy or sell a security. All investors should consult a qualified professional before trading in any security. Stock and covered call option trading involves risk and is not suitable for all investors.

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High Premium Covered Call Options Screener | Best Covered Calls

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Free Covered Call Screener Screen stock and option data to find income-producing covered call trades. Start Screening for Free Sorry, your browser doesn't support embedded videos, but don't worry, you can download it and watch it with your favorite video player! Once you create an account, our screener is free to use.

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Top 3 Mistakes to Avoid When Trading Options

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Top 3 Mistakes to Avoid When Trading Options

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The trading of equity options has become an incredibly popular vehicle for investors. However, like any investment, options carry inherent risks. An educated investor will often follow a specific method or course of action while trading options, to minimize risks and to generate consistent income.

Let's take a few moments to outline the top mistakes to avoid when trading options.

Top Mistake #1: Option Ignorance

To start with, an investor should be fully educated on all the aspects of options: what they are, how they are traded, and how they function. First, a trader should know the difference between a call and a put.

Call: A call option is a contract giving the buyer the right, but not the obligation, to shares at a predetermined price

Put: A put option is a contract giving the buyer the right, but not the obligation, to shares at a preset price

Next, you must know the difference between buying an option vs. selling. When you an option, you pay a premium, but get the right to decide if the contract will be exercised. If you sell an option you are a premium but have the obligation to fulfill the contract if the option buyer exercises his or her right. When combining calls, puts, buying, and selling, you can quickly see that option trading is more complex than simply trading stocks.

Option investors should also be familiar with some unique terminology that applies only to option trading and option contracts.

The strike price is the price at which shares are bought or sold.

The expiration date is the date on which the option contract expires.

When entering an order, you should pay careful attention that all information related to the contract is entered correctly. You can find all the different strike prices and expirations on the option chain. Not fully understanding these aspects of options or misentering one while trading is one of the most common mistakes of new option traders.

Top Mistake #2: Wild Speculation & Excessive Leverage

Understanding the basics of options is important, but having a plan of action to utilize them in your trading is also key to consistent returns. Investors who do not have a plan for their options trading can be susceptible to the temptation to engage in practices such as speculation or market timing.

Speculation refers to the trading of securities in the belief that the security will have a significant change in price in the short term. Speculators often expect to achieve extremely high returns without a good grasp of the potential risks. While you can get a speculative bet correct from time to time, it is impossible to guess these trades correctly consistently.

Market timing is synonymous with speculation. Countless studies and decades of investment results have proven that no one can time market tops and bottoms consistently. That means you need to create a plan that will work in all the different market conditions.

Frequently, investors will also use options because of their leverage capabilities. Again, this is an attempt to achieve excessive returns with less capital at risk. Since option contracts represent 100 shares, you can quickly control a lot of shares at a fraction of the cost. New option investors can also underestimate the total capital required when trading multiple option contracts. Finally, if the investment in question does not produce the results the investor hopes for, the potential loss that they will suffer can be compounded.

Top Mistake #3: Using Risky Option Strategies

Of course, the importance of having a plan does not mean that every type of plan that a trader can pursue is appropriate. Many options strategies carry significant degrees of risk and are simply inappropriate for most investors. Buying calls and puts have an inherent risk; when you purchase these options, you are essentially betting on whether or not the price of the underlying position will go up (or down). If the desired result fails to occur, you risk losing the premium that you paid for the options that you bought. Buying a single option without holding the underlying stock or using a combination of options is often an all-or-nothing bet.

Selling certain options can also bring risk, however, and in a far greater proportion. Many investors engage in the selling of covered call options, the selling of a call for which you own a bundle of shares that can be sold if the buyer chooses to exercise the option. Covered calls are one of the most common, least risky options strategies. It is a great place for new option traders to start to gain experience.

Some investors, however, engage in the selling of naked calls. This refers to selling a call option when you do not actually own a bundle of shares to cover the option if it gets exercised. Selling a naked call is very risky; the seller is making a bet that the price of the option will not go up (essentially, the opposite of what the purchase of a call option is hoping for). If the price does go up, and the buyer chooses to exercise the option, the seller must purchase a bundle of shares at the current market price and then immediately sell them at the strike price of the option. The strike price will be less than the market price the seller had to pay to purchase the shares; because the price of the shares has no ceiling, the risk for the seller of the naked call is unlimited.

Buying or selling a single call or put is known as a one-leg trading strategy. However, there are also more complex multi-leg strategies that investors can trade. Examples of multi-leg option strategies include straddles (where an investor will buy both a call and put option at the same strike price) or a strangle (where a call and put are bought at different strike prices). Because these strategies involve the purchase of multiple options, the premium paid is increased, as is the risk. Investors should also take time to determine how income or profit will be made off of a multi-leg option trade; most strategies of this type are dependent on a specific sequence of events occurring in order for the trade to be profitable to the investor.

While the above explanation may make it sound like there is a limitless number of pitfalls that can befall an options investor, the reality is far different. Options trading has proven popular with investors due to its reliability and the consistent returns that can be generated. The key to successfully trading options is to adopt an appropriate strategy, learn all the facets of trading it, and trade it consistently over the long term.

Posted in Tagged Options and Options Trading | option trading, options

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Trading Options? Top 3 Mistakes to Avoid When Trading

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The trading of equity options has become an incredibly popular vehicle for investors. However, like any investment, options carry inherent risks. An educated investor will often follow a specific method or course of action while trading options, to minimize risks and to generate consistent income.