Covered Call Strategy
Selling Covered Call Options can be a great way to earn Extra Income from your individual Stock positions & Exchange Traded Funds or ETFs.
This strategy is Not available within Mutual Funds.
We are only going to focus on Selling Covered Call Options & NOT UNCOVERED CALL OPTIONS, which are extremely risky and should be used by Professional Money Managers ONLY!
Many people looking for income from their investments focus on Stock Dividends, Fixed Income & CDs, which may not generate enough income for living expenses.
Selling Covered Call Options from Stocks or ETFs you already own can be another important strategy to consider.
Many of you reading this article may be wondering why you have never heard of this strategy from various popular Financial Networks or your Financial Advisor.
Here are some reasons why:
• In years past each Stock trade & Option trade would generate a sizeable commission, the cost of that commission would directly impact how much money Selling Covered Call Options could generate,
• With most brokerage firms now offering no cost or low cost trading fees, Fee Based or Asset Based accounts which offer no trading fees, only an Annual fee, the Selling Covered Call Option strategy can have a greater impact on the investment income generated,
• In order to benefit from Selling Covered Call Options, you must own a minimum of 100 Shares of the Stock or ETF you are Selling the Covered Call Option on, 100 shares = 1 Call Option, therefore, depending on the size of your investment account you may not benefit from this strategy, while still maintaining a proper Diversified Portfolio,
• Most Financial Advisors are not interested in spending the time it takes to research Covered Call Option prices, and they don’t want to be involved with Stock, ETF or Option trading. Most advisors would rather use Mutual Funds for smaller clients, and for larger clients turn to Private Portfolio Managers.
With Selling Covered Call Options, you will have 3 ways to generate Income & Gains from Stocks or ETFs:
- If you own a Stock or ETF, you can earn appreciation on the price if it goes up in value,
- If a Dividend is offered, that is one source to earn income,
- Selling Covered Call Options would be the second way to earn income.
Between the Stock or ETF Appreciation, Dividend Income & Selling Covered Call Option Income, you have 3 ways for your investment account to grow, and to meet your current or future living expenses.
Investors looking for a specific annual return or generating a specific annual income from their investment account, will most definitely have more success with 3 ways to generate gains or income than with 1 or 2, while sticking with a more Conservative investment portfolio allocation.
Taxes & Selling Covered Call Options
When you generate income from Dividends or Covered Call Options, that is Taxable income. If you reinvest the Dividend income back into the Stock or ETF, the Tax consequences will be based on Short-Term or Long-Term Capital Losses / Gains when the Stock or ETF is sold.
Selling Covered Call Options are best used inside a Tax Deferred account, like an IRA, Roth IRA, Solo 401k, Simple IRA or SEP IRA. Being able to defer Tax on gains or income will help investment accounts grow faster.
To learn more about the Selling Covered Call Option strategy, and see if it may be suitable for you, please contact James at J.Wigen@IFManagers.com.
Options trading is not suitable for all investors. Your account application to trade options will be considered and approved or disapproved based on all relevant factors, including your trading experience. Please click here for a link to a document titled “The Characteristics & Risks of Standard Options” for additional important information.
All opinions expressed by James Wigen on this website are solely his opinions and do not reflect the opinions of IFP Advisors, LLC, dba Independent Financial Partners, (IFP). Investment Advice offered through IFP Advisors, LLC, dba Independent Financial Partners (IFP), a Registered Investment Adviser. IFP and Independent Financial Management, LLC are separate entities.