COVERED CALL CALCULATOR

COVERED CALL CALCULATOR

Instructions for using TheMoneyMadam's "Covered Call Calculator."

I enhance my income with income from covered calls and I encourage you to learn this technique. 

My Covered Call Calculator is a tool I use all the time; so I put it on my website to help you learn how to use covered calls as part of your income investing strategy.

Begin by entering the price you paid for a stock COST BASIS.  Remember this is not an options trading strategy.  Options traders buy and sell options. We income investors buy and sell income producing stocks.  We already receive dividend income; we sell calls for extra income.

Next, enter the STRIKE PRICE of the call option.  The strike price is the price the call buyer pays you for your shares if they decide to buy your stock before their option expires.  The buyer has no obligation to buy your stock. You, as the seller, have the obligation to sell the stock at the strike price. Your goal is to receive close to a ten percent gain on your stock if the buyer actually follows through and buys your stock.  Otherwise, it may not be worth the effort.  After all, the stock is already creating income for you.

The Covered Call Calculator will immediately display the GAIN in dollars and the GAIN YIELD in percent that you will reap if your stock is bought at the strike price. Your goal is around 10%.

Once you have determined that you will receive enough of a gain from the strike price, you need to see if the income from selling the option is worth it.   

Enter the CALL PREMIUM which is the income per share you will receive from selling the call option. The Covered Call Calculator will immediately display the CALL YIELD from that income.  Your goal is to make enough money from the call premium that it is worth potentially giving up your stock.  I like the income from the premium to be at least equal to a quarterly dividend. For instance, if a stock pays you $.25 in dividends per quarter and the stock trades at $25.00, your annual dividend yield (sum all four quarters of dividends and divide by the stock price) would be 4%.  If you can get additional income equal to or greater than $.25 from the call premium, the call yield is 1% and your income yield increases to at least 5%. 

That is all there is to using the call option calculator.  Try it.  If you want to boost your income, selling call options is an effective strategy for income investors who use dividend stocks for a portion of their income.

TheMoneyMadam 

An excellent article from Yahoo on Covered Call Investing. Click Here!