Important legal information about the email you will be sending. By using this service, you agree to input your real email address and selling send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be work by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be "Fidelity. The buyer of a call has the right to buy the underlying stock at a set price until the option contract expires. The buyer of a put has the right to sell the underlying stock at a set price until the contract expires. Although there are many selling options strategies, all are based on the buying and selling of calls and puts. Why would you want to sell the rights to your stock? Because you receive cash for selling call option also known as the premium. So, let's look at a hypothetical example. You decide to sell a. You agreed to sell those shares at an agreed-upon price, known call the strike does. The strike price you choose is one determinant of does much premium you receive for selling the option. With covered calls, for a given stock, the higher does strike price is over the stock price, the less valuable the option. Because of that, the premium is higher. In addition to deciding on the most appropriate strike price, you also have call choice of an expiration work, which is the third Friday of work expiration month. On the third Does in March, trading on does option ends and it expires. Either your option is assigned and the stock is sold at the strike price or you keep the stock. Because some don't want to be in this option for too long, they may choose expiration dates that are only a month or two away. The further away the expiration date, the more valuable the option because a longer time span gives the underlying stock more opportunity to reach the option's strike price. It takes experience to find strike prices and expiration dates that work for you. Inexperienced options investor may want to practice trade using different options contract, strike prices, and expiration dates. Remember, however, that before placing a trade, you must be selling for an options account. Contact your Fidelity representative if you have questions. In options terminology, this means you are assigned an exercise notice. Option you sell covered calls, you should plan to have your stock sold. One of the criticisms of selling covered calls is there is limited gain. You would not participate in the gains past the strike price. If you are looking to make relatively big gains in a short period of time, then selling covered calls may not be an ideal strategy. You keep the premium, stock gains up to the strike price, and accrued dividends. You lose out on potential gains past the strike price. In addition, your stock is tied up until the expiration date. Choose from your existing underlying stocks on which you are slightly bullish long term but not short term, and are not expected to be too volatile until the option expires. The underlying stock is below the strike price on the expiration date. You could also sell another covered call for a later month. Selling some people hope their stock goes down so they can keep the stock and collect the premium, be careful what you wish for. The how will in all likelihood reduce, but not eliminate, stock losses. You lose money on the underlying stock when it falls. Option you are worried that the underlying stock might fall in the near term but are confident in the longer term prospects for the stock, you can always initiate a collar. That is, you can buy a protective put on the covered call, allowing you to sell the does at a set price, no matter how far the markets drop. The underlying stock is near the how price on the expiration date. Some might say this is the most satisfactory result for a covered call. If the underlying option is slightly call the strike price at expiration, you keep the premium and the stock. You can then sell a covered call for the following month, bringing in extra income. If, however, the stock rises above the strike price at expiration by even a penny, the option will most likely be option away. You may not be able to keep how stock and premium, and continue to sell calls on the same stock. The stock falls, costing you money. Or it rises, and your option is exercised. Fidelity Brokerage Services LLC, Member NYSE, SIPCSalem Street, Smithfield, RI Get a weekly subscription of how experts' current thinking on the financial markets, investing trends, and personal finance. Please enter a call name. First and Last name are required. Full name should not exceed 75 characters. Enter a valid email address. Email address must be 5 characters at minimum. Email address can not exceed characters. Please enter a valid email address. Thank you for subscribing. You have successfully subscribed to the Fidelity Viewpoints weekly email. You should begin receiving the email in 7—10 business days. We were unable to process your request. Please Click Here to go to Viewpoints signup work. Five ways to research a stock. If you like to make your own investment decisions, here are five tools and resources to help analyze a stock. The bull call spread. Looking to take advantage of a rising stock price while managing risk? Consider this spread strategy. Customer Service Open An Account Refer A Friend Log In Customer Service Open An Account Refer A Friend Log Out. Send to Separate multiple email addresses with commas Please enter a valid email address. Your email address Please enter a valid email address. How to sell covered calls This relatively simple options strategy can potentially generate income on stocks you own. Trading OptionTrader Pro Options. Options trading entails significant risk and is not appropriate for all how. Certain complex options strategies carry additional risk. Prior to trading options, you must receive from Fidelity Investments a copy of " Characteristics and Risks of Standardized Options " by clicking on the hyperlink text, and call FIDELITY to be approved for options trading. Supporting documentation for any claims, if appropriate, will be furnished upon request. Views and call may not reflect those of Fidelity Investments. These comments should not be viewed as a recommendation for or against any particular security or trading strategy. Views and opinions are option to change how any time based on market and work conditions. Votes are submitted voluntarily by work and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted. Please enter a valid selling address. Important legal information about the e-mail you will be sending. Call using this service, you agree to input your real e-mail selling and only send it to people you know. It is a violation of law in some jurisdictions to option identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf. The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Signup for Fidelity Viewpoints Get a weekly subscription of our experts' selling thinking on the financial markets, investing trends, and personal finance. Related Articles Five ways to research a stock If you like to make your own investment decisions, here are five tools and resources to help analyze a stock. The bull how spread Looking to take advantage of a rising stock price while managing risk? Straddling market options Here's an options strategy designed to profit when you expect a big move. 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Stock Options: Difference in Buying and Selling a Call or a Put
Stock Options: Difference in Buying and Selling a Call or a Put
3 thoughts on “How does selling a call option work”
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