Free guide - Using covered calls could help generate income from your existing shares.
 

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Free guide - Using covered calls could help generate income from your existing shares.

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As an investor, your portfolio returns don’t need to rely on market movements to profit. ...

As an investor, your portfolio returns don’t need to rely on market movements to profit.

Using the covered call you could help boost your portfolio returns – especially when the market is flat and prices are moving sideways.

This free quick guide will help you understand:

• What is a covered call,
• How to construct a covered call against stock you currently own,
• Ways that this trade can help generate income from shares.

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Free guide - Using covered calls could help generate income from your existing shares. Presentation Transcript

  • 1. EXCHANGE TRADED OPTIONS Part 3: Covered Calls TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au
  • 2. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Covered Calls 1 Covered Calls are an options strategy that can be used to generate cash using the collateral value of the shares in a portfolio.
  • 3. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Covered Calls 2 A covered call strategy involved selling call options to open the trade.
  • 4. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Covered Calls 3 Call options are sold above or at the share price in the view that the share price will go sideways to bullish.
  • 5. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Covered Calls 4 Call buyers have the right to buy the underlying stock.
  • 6. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Covered Calls 5 A call seller will receive a credit to enter a contract with the buyer
  • 7. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Covered Calls 6 They will be ensuring the buyer that they will sell stock to them at the strike price of the contract.
  • 8. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Profiting from Covered Calls 7 To profit we set the strike higher than the price paid for the stock, as well as the current share price. Calls Strike Price Current Share Price Price paid for stock
  • 9. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Profiting from Covered Calls 8 As a result, if the option is exercised, you will sell your stock for a profit, plus you keep the credit received to enter the contract.
  • 10. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Profiting from Covered Calls 9 If the share price goes sideways and is below the call strike on expiry, the option expires worthless.
  • 11. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au But you keep the credit that you received by opening the contract. 10
  • 12. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au An example Covered Call 11 It is May and we own 1,000 XYZ shares that we bought at $35.10.
  • 13. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au An example Covered Call 12 The share price is trading at $36.00 so we decide to sell to open a call option with a strike of 36.50 in June for .60c Credit per option.
  • 14. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au An example Covered Call 13 XYZ Share Buy Price 35.10 Sell to open 36.50 June Call for .60c CR XYZ current share price 36.00 As we own 1,000 Shares, we can sell 1,000 call options or 10 contracts using 100% of the collateral value of the shares. This will create a credit of $600.
  • 15. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Scenario One - The Share Price Falls 14 The share price falls and is trading at 34.90 on June expiry. The options will expire worthless.
  • 16. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Scenario One - The Share Price Falls 15 In this situation, you keep the $600 but the XYZ shares have lost .20c of value or $200 so you profit $400 even though the share price has fallen.
  • 17. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Scenario Two - The Share Price Rises 16 The Share price rises to $37.00 on June expiry. We get exercised on the option so we will sell the stock at 36.50.
  • 18. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Scenario Two - The Share Price Rises We will make $1.40 on the stock or $1,400; we also keep the credit from the call option we sold of $600. This equates to be a $2,000 profit for the month. 17
  • 19. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Scenario Three - The Share Price Falls The share price falls and is trading at 34.00 on June expiry. The options will expire worthless and we keep the $600 but our XYZ shares have lost 1.20 of value or $1,200. 18
  • 20. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Risks of Covered Calls 19 The risk is the same as holding the shares, as if the share price falls then the value of the shares will go down.
  • 21. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Risks of Covered Calls 20 The credit from the options will help reduce the loss compared to just holding the shares.
  • 22. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Risks of Covered Calls There are many different ways of managing and timing the entry of a covered call, which will yield different results. 21
  • 23. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Risks of Covered Calls 22 You need to be prepared to sell the stock if needed for this trade to work.
  • 24. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Risks of Covered Calls 23 Covered calls can only be made on a stock that has exchange traded options.
  • 25. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Conclusion 24 Portfolio returns do not have to rely on market movements to profit.
  • 26. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au Conclusion Investors can still achieve strong returns, even when markets are flat by selling call options against stock holdings. 25
  • 27. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041 PH: 03 8080 5788 WEB: www.traderscircle.com.au EMAIL: admin@traderscircle.com.au 26 Interested in becoming a trader? The right education is essential if you want to reach your trading goals. Register with us today to learn more about our trading education programs.
  • 28. 32 Warnings and important information. Any advice contained in this communication is general only and does not consider your objectives, financial situation or needs, and you should consider whether it’s appropriate for you. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) at www.traderscircle.com.au and the relevant Product Disclosure Statement (if there is one available) first. Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only act on our recommendations if you are confident that you fully understand what you are doing. Past returns do not reflect future returns, and it is also possible to make significant losses. We employ expert traders and use strategies that maximise returns and minimise risk. However, there is always a risk of loss when trading and investing. This is general information, and is not prepared for your specific investment objectives, financial situation or needs. Consult a licensed investment adviser before making investment decisions. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised representative of OzFinancial Pty Ltd, AFSL number 241041.