Strategies

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Weekly Strategy Discussion

The Weekly Strategy Discussion is designed to assist individuals in learning how options work and in understanding various options strategies. Options involve risk and are not suitable for all investors. The strategies discussed are for educational and illustrative purposes only, and should not be construed as an endorsement, recommendation or solicitation to buy or sell securities. Commissions, taxes and transaction costs are not included. Please contact a tax advisor for the tax implications involved in these strategies.

Covered Call with Weekly Options

 

Example:                 You own XYZ stock which is trading $34.80. 

 

Outlook:                  You are neutral on XYZ stock over the next week and are looking to generate some income.

 

Possible Strategy:   Sell one Weekly Option XYZ 35 strike call at $.60.

 

 

*All values shown are at the time of expiration .Commissions and other trading fees not included.

Date

Days to Expiration

XYZ Price

XYZ Weekly 35 Call

7/15

 8

34.80

.60

7/23

 7

34.80

 .50

7/30

 7

34.80

  .50

8/6

 7

34.80

 .50

8/13

 7

34.80

 .50


 

At Expiration:

 

  • Maximum Profit 1st Week = Stock Sale Price + Call Premium Received – (Stock Price)
  • $.80 = $35 + $.60 – ($34.80)

 

  • Breakeven 1st Week = Stock Price – Call Premium
  • $34.20 = $34.80 - $.60

 

  • Maximum Loss = Significant on the downside with stock ownership

 

 

 

In Summary: Based upon your short term outlook, you might consider selling an out of the money weekly call option on a share for share basis to generate income in a stable market. 

 

CBOE Volatility Index (VIX)