A “covered call” is a powerful strategy to generate income from your stock investments. TradeStops can help you keep track of your covered call investments.
To accomplish this, we could sell a call option with a $145 strike price. For this example, we’ll sell the May 145 call. The price on the call closed at $2.36 on 3/24/2017. Here is how we enter the trade into TradeStops.
Now let’s set up an alert for this covered call position. To do this, we’ll set up an option alert. We know that the VQ for AAPL is 17.4%. Let’s use that as our stop loss setting for the covered call. Also, let’s use the most recent close of $140.64 as our cost basis. This way we’re not taking more risk than necessary in the position.
We now have the alert set up to notify us if the stock closes 17.4% below the adjusted cost basis of $138.28. This adjusted cost basis is the cost that we entered for the stock minus the premium that we received. In this case, it’s $140.64-$2.36 = $138.28.
We recommend that you create a couple of examples on your own so that you’ll be comfortable entering these trades in your actual investment accounts.
If you have any questions, please contact our Customer Success team.
Education Director, TradeStops