NameCover Call
TypeOption
RiskLow
RewardLow-Medium
CycleWeekly, monthly or longer
Profit/Loss1-10% profit, -1% w/stop loss
MarginCost of stock shares minus call credit
Entry RulesBuy 100 Shares of stock and sell 1 Call option
Reference:
CBOE Exchange
Cover Call Search
OIC Cover Call Strategy
Risk Profile



About Strategy

In cover call strategy, the investor can expect a neutral or moderately bullish move. The call option sold provides enough security for downside protection equivalent to the premium reward. The writer receives cash for selling the call but will be obligated to sell the stock at the call's strike price if assigned, thereby capping further upside stock price participation. When using this strategy with technical indicators one can have good probability of success for regular profit. The investor will have limited downside protection, so, a plan should be considered for handling sudden downside movement whether it be by adjusting the position or setting up a stop loss trigger. Every strategy should consider diversification, probability and loss reduction for an investor to maintain a positive portfolio balance.