Options trading strategies | the covered call
There are several options trading strategies to realize the coverage or a stock portfolio (call or put). Considering the situation of the market, that it has recovered from minimums giving place that a good part of the portfolios accumulate benefits, but before the doubt of these moments, it would be convenient to compile the different strategies to cover your position.
The covered option call
The covered option call is an operation that consists of the coverage of the portfolio of actions with selling of calls. When you have a stock portfolio which you’ll want to cover, the covered call operation allow the sell of the stocks at strike.
The selling of the call allows to receive a premium but in return there is acquired the obligation to deliver the stocks at the cost of exercise.
Since it is known the buyer of the call will exercise the option if the quotation in this moment is higher than the stike materializing the operation and the one who has realized the operation of coverage has stopped gaining the excess on the price of exercise but, in return, it has had the safety of the selling during the whole covered period.
If the underlying quotes lower than the strike, the buyer of the call will not be interested in exercising the option since they are cheaper on the market. Therefore, this operation allows to remain with the premium and reduce this way the cost value of the actions.
Inside the strategy call covered, the election of the price of exercise grants distinguishing elements to the same one, since for the options ITM (in the money) he competes for taller premiums whereas with options OTM (on the money) top prices of exercise are preferred for his exercise and, therefore, they bear a minor premium and a major probability of the option not being exercised.
The covered call can be carried out on any financial instrument of the underlying one and it is of interest to highlight that putt is equivalent to one synthetic sold. In rigor, the latter strategy is constructed combining a future bought with a sold call, being valid all the remarks realized in this point.
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