Today I want to get down to business and give you one of the simplest, most basic options trades in the world.
The key to a covered call is picking the right underlying stock, and I’m going to give you that.
The ticker is VRT.
Right now it’s trading for about $97.
If you buy 100 shares of this stock, you’ll pay $97 x 100 shares = $9700.
If you use margin, you’ll only need half of that.
The Covered Call
Once you get that 100 shares, you can sell 1x VRT June 14 $100 Call for about $5.
That means you’ll collect about $500 for selling that one option.
So let’s do some math, if the stock costs you $97 per share and you collect $5, that means your cost basis is $92.
If the stock does happen to sink down near your cost basis, you can buy back the call option you sold at a cheaper price than you sold it and sell the stock. That’s your breakeven scenario.
Now, if the stock doesn’t go down and you get called out at $100, then you made the $500 plus the difference between $100 and the price you paid for the stock.
That’s why this is one of the best options trades in the world. It’s very hard to lose money with it.
In fact, the CBOE wrote a letter to the SEC that the covered call strategy is safer than owning a stock outright.
Why? Because it lowers your cost basis — and therefore it reduces your risk.
Take that one to the bank. And remember, if you’re still getting started with trading, you can paper trade this and still get all the experience of placing the trade without risking any money.
Trade well,
Jack Carter
