Quick tutorial on how to make money with covered calls. Simple example shows how to increase yield from stocks you already own.

1. Quick
Covered Call
Tutorial

2. • A covered call is a two part trade
– buy stock
– sell a call option

3. • What does it do for you?
– generates recurring income
– creates downside protection
– lowers portfolio volatility

4. • What is a call option?
– A contract between a buyer and a seller.
– The buyer purchases the right to buy stock at a
certain price by a certain date.
– The seller assumes the obligation of selling stock
at a certain price by a certain date.

5. • Example:
– You buy 100 shares of XYZ
• Pay $39/share = $3900
– You sell 1 call option
• Strike of 40
• Expiration date a month from now
• You receive $1 per share, or $100
– Total out of pocket cost = $3800

6. • What have you done?
– By selling the call option you agree to deliver 100
shares of XYZ at $40/share to the buyer of the call
option any time between today and when the
option expires

7. • 2 possible outcomes on expiration day:
– XYZ is at or below 40
• The option expires worthless
• Your basis is now $38; sell another option
– XYZ is above 40
• The buyer exercises the call option
• You receive $40/share in cash for your stock

8. • If called, you make $200
– Initial outlay: $3900 - $100 = $3800
– Called away at $40/share, you get $4000
– Profit = 4000 – 3800 = $200
– $200 / $3800 = 5.3% in 1 month

9. • For additional examples and tips on using the
covered call strategy please visit our site and
click on Tutorial in the menu bar:
http://www.borntosell.com