When to Use an In the Money Covered Call Strategy, Less Investment Capital for In the Money Covered Calls, In the Money Covered Call Strategy Pros and Cons. Selling deep in-the-money call options represents an innovative approach to obtaining high probability yields. Option 2. Option 3. For a more comprehensive breakdown on the different strategies Click Here To Read… Selling Options To Boost Your Income . As you can see, all the profit from this covered call investment came from the sale of the option premium, as is often the case with in the money covered call strategies. Contrary to popular belief, selling covered calls slightly reduces stock risk over owning stocks outright without a covered call strategy sold against them. I like to assess this from a stock chart, as well as fundamentals such as earnings and dividends, while also factoring in the risk I am willing to accept. Note that since the stock price has dropped from her purchase price of $18.50, the income generated will not be as good as the prior month since the stock price (and related option) is lower. ♦Income Stream Tip♦  Note that decay of time value is a huge advantage for option sellers vs option buyers that naturally happens with covered call writing. This allows you to sell call options repeatedly against the same stock position, thereby reducing the need to find additional suitable stocks. Assume Retire Corp closed at $19.00, or out of the money. Selling Deep In The Money Calls Example Let's say you like McMoRan Exploration (MMR, oil & gas company). Alex can sell another call option for the next month against her shares in Retire Corp. For options, both a call and a put option can be in the money. or out of the money covered call strategy. They are addicted to the thrill of the game as they continue to look for that next explosive trade. first covered call on a new position has the best return, over ongoing, managed positions, giving me a bias toward at the money or in the money covered calls. You’re betting for a specific outcome with odds of winning a mere 25% to 40%! This is why doing the option expiration math for all 3 potential outcomes is important before making any covered call investments. They are addicted to the thrill of the game as they continue to look for that next explosive trade. Read on to find out how this strategy works. over the past 15 years from real estate, stocks, and online business. Plus, … This is why I often write that selling covered calls can be an ideal income stream for investors who already have stock market risk in their portfolio anyway. Deep In The Money … The option buyer didn’t exercise the option since the market price of the stock on expiration day is below the strike price. Based on your overall wealth plan, you may find that you want income more than capital gains. is that stock and option commissions have gotten very cheap over the past two decades due to competition, especially with the ability to buy and sell securities online. This article is going to cover selling deep in the money (ITM) puts. (Find out about another approach to trading covered call. It’s a quality stock, but based on the stock’s chart, she thinks the stock has a good probability of dropping in value over the short term because it’s at the top of its’ recent trading range. Investopedia uses cookies to provide you with a great user experience. Stop losses can be set to significantly lower stock risk when selling covered calls. When found, an in-the-money covered-call write provides an excellent, delta neutral, time premium collection approach - one that offers greater downside protection and, therefore, wider potential profit zone, than the traditional at- or out-of-the-money covered writes. Selling call options against shares you already hold brings in guaranteed money right away. ♣  It’s super important to remember that when you sell in the money covered calls, you know that you may have to sell the stock at a loss. * ABC Jan 50 calls trading at $15 (These are in the money by two strike prices.) It involves writing (selling) in-the-money covered calls, and it offers traders two major advantages: much greater downside protection and a much larger potential profit range. It’s easy for investors to get lured into writing covered calls because the income is so high relative to dividends. This is simply because when an in the money covered call is exercised, the option seller has to sell the stock at a lower (strike) price with an in the money covered call than an out of the money covered call. This was the market price when she sold an in the money call option for $1.40 with an $18 strike. . Also, the potential rate of return is higher than it might appear at first blush. Assume the option buyer did not exercise the option by buying the stock. ♦Wealth Building Tip♦ All investments are bad if they take an investor outside of acceptable risk while too little risk can hinder investment returns. Put selling by using deep in the money puts is a … That … are profitable, but many are, and they can be an excellent income source. Click here to get my eBook with our favorite 9 income generating strategies that build wealth, too. By owning 600 shares of Retire Corp, Alex was able to sell 6. Many are, and there were 27 days left in the money by two strike prices. ) turned to. 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