Reasons We Stopped Trading Covered Calls

Do you know how to save your losing stock trades using options?

Today SlashTraders will show you how to sell Covered Calls to hedge against your stocks. So you can earn a premium from selling options to reduce the cost basis of your stocks.

We will also share with you a few drawbacks of the Covered Calls, so you know when not to trade them.

We'll talk about 3 key points today:
0:38 What is a Covered Call?
1:55 Why sell Covered Calls?
3:46 3 reasons why we don’t sell Covered Calls

A Covered Call is an options strategy that hedges against a long stock position by selling OTM Call to collect a premium if the stock price doesn't rise.

When we combine buying 100 stocks with selling a Call option, we get a Covered Call. The premium received from the short Call can reduce the cost of the stocks, and increase your chance of profit.

If the stock price increases past the Call strike before expiration, the 100 stocks will be sold at the strike price for a profit to compensate for the loss of the Call trade.

If we want to hold onto a stock for the long term, but are afraid of a bearish trend, we can trade the Covered Call to hedge our position.

The cost per share will continue to drop as you sell Covered Calls.

Even though the Covered Call is a key part of the Wheel Strategy, but there are 3 key reasons that we don't like to trade Covered Calls:
A Covered Call requires too much capital and has very low returns.
Good dividend stocks usually have poor option premiums.
Covered Calls can miss out on sudden bullish trends of growth stocks.

Now you know the basics of trading Covered Calls. You can see despite the low-risk trade, the cost of each trade is very high, has low returns, and we can miss out on big price gains.

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