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Covered calls are one of the most popular options strategies that traders use, but are they worth it? In this video, we’ll learn the dark side of covered calls, and understand what we’re really doing when we enter one of these trades.
To understand the problem with covered calls, we’ll look at a potential trade I could make with my SQ stock position and run through four scenarios that could play out after entering the trade.
0:00 Introduction
0:14 Covered Call Benefits
0:43 Covered Call Setup Recap
1:44 Example Covered Call in Square (SQ)
3:20 Scenario #1: Neutral Stock Price
4:24 Scenario #2: Bearish Stock Price
6:04 Scenario #3: The GOLDEN Covered Call Trade
8:00 Scenario #4: The PROBLEM Outcome
10:30 What You’re REALLY Doing When Trading Covered Calls
12:33 How Covered Calls Can INCREASE Your Share Cost Basis
14:50 Don’t Miss This Resource!
Covered calls can outperform simple buy-and-hold stock positions in many scenarios, but be mindful of the fact that you are agreeing to sell your upside on the shares when entering into the position.
I dislike the covered call strategy on stocks I’m holding with long-term intention. I don’t want to be put into a situation where I have to buy back the short calls for a loss if I trade a covered call and the stock goes to the moon.
In short, I will only trade a covered call on a stock position that I truly don’t mind selling at the given strike price of my choosing. Many options traders THINK they are ok with selling their shares at the strike price of the call, but change their minds when the stock rallies above the strike. Be absolutely sure you’re ok with selling your upside on the shares of stock!
== Recommended Resources/Videos ==
➥ Covered Calls for Beginners:
➥ Options Trading for Beginners (The ULTIMATE Guide):
➥ Vertical Spreads for Beginners (The ULTIMATE Guide):
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