How to SELL a CALL Option – [Option Trading Basics]

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Many people don’t understand that you can actually sell option contracts without having the stock, or without owning the other option side of the trade.

Selling options is more popular among professionals than buying option contracts. That is because when you sell option contracts, you can allow the time decay to work in your favor.

You need to understand that there are four parts to a trade. You can buy a call or sell a call and you can buy a put or sell a put.

When you’re a buyer of a call, you want stock prices to go up. When you’re a buyer of a put, you want stock prices to go down. When you’re a seller of a call, you want prices to go down, and if you’re a seller of a put, you want stock prices to go up.

Selling a call option is very similar to selling a car that is not on inventory. Car dealerships often sell cars that aren’t even on the lot, because you may want it in a different color, or with special features that they may not have at the time. So what they do is sell the car to you, and then they order it and make it especially for you. That’s often what happens, with selling call options.

What is a call option?

Most people buy calls, at least the beginners. When you buy a call, you want the stock to go up, you have a bullish outlook. However, selling a call means you’re looking for the stock to go down, you have a bearish outlook.

The way most people approach selling calls is they already have a stock position, and then they sell calls against it, in order to hedge or protect that investment. This is also known as a covered call strategy.

The advantage that you have when selling a call is that if the stock stands still, you make money, if it goes down, you make money, and if it goes up a little bit, you still make money. So there is a higher probability of success.

However, the disadvantages of selling a call option contract is that you have a capped or maxed profit, which means you don’t have unlimited profit potential, and also you have unlimited risk, because there’s unlimited loss potential, as the stock price continues to head higher.

In this video we’re going to look at the profit picture and risk profile when it comes to selling a call, and also I’ll show you how to sell a call on an options trading platform.

Posted at: http://tradersfly.com/2017/12/selling-a-call-option/

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Comments

Foo Ling says:

First thanks for doing all these great tutorials. Cn you make the image clearer?

David Hur says:

Sorry, I didn't ask my question right. Q: so when you buy a Covered Call "Sell to open 1 Strike price Call " but you wish to end it before it expires, What do you do ? buy to open or buy to close ??? do you also have to add Call or Put? in other words what is a complete statement we would have to order when we wish to close your order before it expires . I would appreciate your response. I am reading books about options but they fail to explain this detail.

David Hur says:

do you offer classes on Covered Call lectures ? by the way, when I close Sell a call by asking for 1 contract, then I want to close it, "Buy a Call" do I have to write again 1 contract, Call and pay again the fees again ?

David Hur says:

thanks for your response so now if you Sell a call how do you close it ? Buy a Call ?

David Hur says:

so, after you buy a call 1 contract and you want to get out before it expires, how do you sell it ? do you need to press sell to open or sell to close ? how to you get out ?

B G says:

how do you close a position if you are selling a call and dont want to anymore

Mazhar Islam says:

what software were you using in this video? to show the option plot?

Sagar S says:

I am beginner and on YouTube liked your videos more for an in depth knowledge about option.
Question : After watching many videos missing one part. Let’s say I am bullish on Apple stock and brought a call option(BUY) for After 60 days expiration. Currently Appl is @216 and in couple of weeks moves to $225 and may be it will come down to $ 215 level latter before my expiration. How to get profit @225 level with call option. What to do @ 225 to get out of my call option. I never want to own the stock that mean I don’t want to wait until expiration as I might be thinking after reaching high @225 AAPL is coming down to $215. So how to earn profit at highest level and get out of that call buy option. Thanks many keep up the good work 👍

nyle123nyle says:

Quick question, asking before watching vid. Probably in the vid. But can i sell the option before the date???

canefan17 says:

Beginner here. 1 thing I don't get when learning about call options….
If I buy a call option, say @ 170 SP with a 3 month expiration (and the stock currently trades at 175)….why am I losing money each day that the stock doesn't go up? I understand that the value of my option theoretically decreases as the expiration date nears….. but if, for example, the stock price popped to 205 just a couple days before the expiration, then I can still unload my position and make the exact same amount that I would have had the stock price popped to 205 2 1/2 months ago, right?

Hope this wasn't too confusing.

MoneyManFernando says:

So what I get from this video is that selling covered calls is the way to go. The best chance of making money.

pedro themido says:

What platform are you using?

WorldPrestige - Stock Market Videos says:

Thanks for all the great videos!

Captain Ace says:

God bless you man, this is the top video in stock trading tutoring for options. All of the other videos were vague especially to beginners. RH has a “free option trading”. I somewhat feel ready to trade options after watching this.

Govinda Ghimire says:

A question on call selling – If a stock is now trading at $5 and the strike price is $10, will i still get the profit from the stock's rally up to $10?
Thanks

Kosovo Report says:

Explain why it's preferable to choose strike prices out of the money? When I look at profit pictures of selling calls on my broker the break even is lower for OTM compared to ITM. What is the main reason(s). As far as I can see usually choosing to sell a Call OTM has a break even point requiring less bear movement and more sideways or up room, but the profit potential is less. When compared to it's ITM counterpart it's a slightly less protection against sideways or up moves, but the profit potential is significantly more. Can you explain or perhaps even do a video follow up to this series of buying/selling calls/puts OTM v. ITM.

ItsTheRed BottomBoss says:

Hey Sasha! I'm starting out and new at trading. When swing trading a ~30$ priced ETF on a weekly basis does it matter if the market data is delayed by 15 minutes? I'm assuming the ETF won't move much in a span of 15 minutes to subscribe for real time market data. I don't have a lot of capital so if i could save up on real time market data subscription (costs around 80$/month) it would be great.

MoneyManFernando says:

What is your opinion of ATT ( T ) ?? Buy , sell or hold ??? I see it keeps going down . Don`t know why ????

MoneyManFernando says:

Would this be episode # 167 or 168 ?? Also can you do a video of selling a PUT option next ??

Positive Investing says:

Great video Sasha! I noticed that the video (your facecam) wasn't "Sticky" or "missing frames" like I pointed out earlier. Did you change something?

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