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RL127 - Covered Calls Explained

On the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson break down the anatomy of a covered call. They talk about the basics of an options strategy, how to own a covered call, and the right market conditions for investing in covered calls. Listen now to Covered Calls Explained.

[02:52] The Basics of an Options Strategy

[04:39] What is an Option?

[08:55] Put and Call: The Two Main Types of Options

[12:45] Things That Dictate How Options are Priced

[15:30] The Correlation Between Value and Price of an Option

[18:51] What is a Covered Call?

[22:04] How to Own a Covered Call

[28:43] How to Use Covered Calls to protect Your Investment Position

[30:20] Price Movement and Yield Appreciation of a Covered Call

[37:00] The Long-Term Approach to Using Covered Calls

[41:50] The Pros and Cons of Writing a Call During a Down Market

[44:25] Selling Versus Buying Covered Calls: Which is More Profitable

[47:10] The Perfect Market Conditions For Writing Covered Calls

[49:30] Writing Covered Calls: Costs, Price Movements, and Tax Implications

[50:29] Parting Thoughts

To read the Full Show Notes scroll down or click here.

  • Roshan Loungani can be reached at roshan.loungani@aretewealth.com or at 202-536-4468.
  • Erik Olson can be reached at erik.olson@aretewealth.com or 815-940-4652.
  • Adrian Nicholson can be reached at adrian.nicholson@aretewealth.com or at 703-915-8905

Listen now to Covered Calls Explained.

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Covered Calls Explained

Full Show Notes:

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.

Disclaimer Welcome, you are now listening to the retirement lifestyle show with Roshan Loungani Erik Olson and Adrian Nicholson. This show is an exploration of ideas to help you work towards your ideal retirement. Roshan Loungani and Erik Olson serve clients across the US. They offer financial planning and investment advice through Arete Wealth Advisors, LLC, an SEC registered investment advisor and securities through Arete Wealth Management LLC, member FINRA, SIPC, and NFA. Get ready for the financial independence of your dreams. All opinions expressed by podcast hosts and guests are solely their own are based on information they believe is reliable. Neither Arete Wealth nor its affiliates, warrants its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only and should not be regarded as specific advice or recommendations for any individual. Before making any decisions consult a professional. Finally, our music is the chance by Jason Shaw and Audionautix. It’s part of the YouTube Audio Library and it’s licensed under a Creative Commons license.

Thank you for listening.

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