Enhance your potential returns without additional capital.
TappAlpha's investment platform provides an opportunity to earn premiums by selling call options against shares you already own.
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Review a case study detailing the strategy of using covered options to generate income.*
*The case study referenced is for educational purposes only and should not be considered financial advice. Past performance does not guarantee future results.
How does this approach work?
The strategy revolves around selling covered call options. For every share of stock you own, you sell someone the right, but not the obligation, to buy that stock from you at a specified price (called the "strike price") within a certain timeframe. By doing this, you receive a premium, which is income added to your account. If the stock's price remains below the strike price by the option's expiration date, you keep both the stock and the premium. However, if the stock price rises above the strike price, the option might be exercised, meaning you'll need to sell your stock at that higher strike price, potentially missing out on some upside. TappAlpha provides tools and insights to help manage and understand these dynamics, ensuring you're informed every step of the way. TappAlpha's platform also assists with the similar strategy of executing cash-covered puts.
What are the risks of this strategy?
The main risk is forgoing potential upside gains. If your stock's price rises beyond the sold call's strike price before its expiration, you miss out on additional profits. While you don't incur a loss, you do leave potential earnings on the table. The downside risk of owning the underlying shares still remains. TappAlpha aids in understanding this risk, ensuring decisions fit your risk tolerance.
What is the upside of this strategy?
Immediate Income: When you sell a covered call option, you receive a premium upfront. This means direct and immediate income, regardless of whether the option is exercised or not.
Downside Protection: The earned premium can offset minor stock price dips, acting as a financial cushion, and potentially preventing net losses on slight declines.
Enhanced Portfolio Returns: Even in a stagnant market, where your stock remains flat, slightly increases, or slightly falls, the option premium you earn can boost your overall returns.
With TappAlpha, you can harness these benefits effectively and easily.
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