Sell a call option (Covered call)
When investors hold 100 shares or more of a specific stock, they can sell call options on that stock.
The maximum profit is the difference between the stock's exercise price and the stock price plus the premium for selling call options.
- When the stock price rises above the exercise price, it will be automatically exercised, and the part of the stock price that exceeds the exercise price cannot be obtained.
- When the stock price continues to fall, selling the call option will cause the corresponding stock of the option to be locked and the stop loss cannot be sold before the expiry date. The maximum loss is the stock price minus the premium received by selling the option.
For long-term stockholders, when the stock price drops, the option premium can make up for part of the loss of the decline, and can also increase the income of stockholders.
When the stock price rises significantly, the profit of selling call options will be smaller than holding stocks. Therefore, it is not recommended to participate in selling call options when the stock is in a sharp upward trend.