With the market now moving in a rather sideways trend, investors are wondering should they start trading to lock in the gains from the top and bottom or should they just hold tight and wait. With covered call options, an investor can adopt the Double Income Covered Call Strategy to generate a consistent stream of monthly income. In this article, I will be explaining how to use this strategy as well as the potential risks you might take on.
What Are Covered Call Options
To understand and apply this strategy, you must first understand what is a Covered Call. A covered call is when an investor is selling call options while owning an equivalent amount of the underlying security. To execute this, an investor holding a long position in a stock then writes (sells) call options on that same asset to generate an income stream through the premiums collected. The investor’s long position in the stock is the “cover” because it means the seller can deliver the shares if the buyer of the call option chooses to exercise.
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