Options Trading Explained 

Options are investment contracts between two parties where the holders have the right to buy or sell the underlying asset within a specific amount of time at a certain price. The value of an option is tied to the underlying asset. This can be stocks, currency, bonds, market indices, future contracts, or ETFs. 

There are two main types of options: calls and puts. A person who owns a call has the right to buy the underlying asset. On the other hand, owning a put gives you the right to sell that underlying asset. The value of an option is primarily based on the current market price of a stock and its volatility. And just like stocks, options trade on exchanges. However, owning an option does not mean part ownership of a company. They also don’t come with voting rights or pay dividends. And while there’s no requirement to buy the asset in question, options are extremely risky. So, it’s always best to weigh the risks before diving into anything to do with options.

What is a Covered Call? 

A covered call is an investing strategy that involves selling call options. It’s essentially utilizing the right to buy against a stock you own to generate additional income from those shares. In essence, the option you sell is “covered” because you own enough shares to cover the transaction as required by the option you’ve sold. However, covered calls are a neutral strategy, meaning investors can only expect a minor increase or decrease in the underlying stock price for the entire duration of the written call option. The good news is that using covered calls helps investors earn potential income as well as lower investment risk. The downside is that they can also limit potential gains from increases in the price of a stock. This investment strategy is often popular with older investors who don’t want to sell their positions but would not mind some extra income.