See below for a few large ETFs that participate in the space. Using ETFs to manage risk It's riskier for investors to try covered call strategies with an individual stock, but there is an array of exchange-traded funds that take a more diversified approach. If your losses exceed the income you generated from premiums, however, you start to participate in those declines. "Some people see it as a buffer for some limited downside protection," said Bryan Armour, director of passive strategies research, North America, at Morningstar. "This way you still have the other 400 that you're making money on." If the underlying stock happens to tumble and falls short of the strike price, you can still pocket the premium. "If you have 500 shares and a low cost basis, just sell one covered call against 100 shares of the stock," he said. META NVDA.SPX YTD line S & P 500 versus Meta and Nvidia in 2023 To safeguard against this, investors can sell covered calls against just a portion of the shares they already own, rather than the entire position, Frederick said. Consider Big Tech names like Meta Platforms, which is up more than 160% in 2023, or Nvidia, which has popped more than 200%. With covered calls, rising markets introduce an element of risk: Sell a covered call against a stock that takes off on a hot streak, and you miss an opportunity. In July, roughly 43 million options contracts are being traded daily, according to data from the Options Clearing Corporation. Covered calls and market performance Even with the S & P 500 up 19% year to date, options volume is still hopping - though it's far down from the 52-week high of 70.1 million options contracts traded in a day. "Or the covered call expires worthless, and you keep what you earned from selling it." Here's how to incorporate this strategy into your portfolio. "At the end of the month, the stock gets called away from you, but you make money on the stock and earn money from the income," he said. "The reason you'd want to sell covered calls is that you can earn income when the stock is going sideways," said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research. Further, if the strike price for the call is higher than the current price and the stock rises, the initial investor sells the stock and captures some appreciation. When these two steps are done simultaneously, it's known as a "buy-write." This way, the premium from the sale of the call option generates income. In this two-pronged strategy, an investor buys a stock and then sells a call option – that is, the right to purchase the asset at a specified or "strike" price by a certain date – to another investor. Personal Loans for 670 Credit Score or LowerĪn options strategy that's done just right will let you capture appreciation as stocks rise and generate some portfolio income. Personal Loans for 580 Credit Score or Lower Best Debt Consolidation Loans for Bad Credit
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