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.

Selling an At-the-Money Call


Example:                 XYZ stock is trading at $60 

Outlook:                  You are bearish to neutral on XYZ stock.

Possible strategy:    Sell an At-the Money Call                                                             

                              Sell one XYZ March 60 call @ $2.40

 

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

Stock Price

Sell 60 Call

Profit/(Loss)

45

$2.40

50

$2.40

55

$2.40

62.40

$0

65

($2.60)

70

($7.60)

 

 

At Expiration:

  • Maximum Profit = Premium received for sale of call.
  • Maximum Profit = $2.40
  • Breakeven = Short Call strike price + Premium received
  • Breakeven = 60 + 2.40 = 62.40
  • Maximum Loss = Unlimited

In Summary: Selling an At-the Money Call option is a bearish to neutral strategy with the intention of collecting option premium.  Selling naked options may require special approval from your broker.

CBOE Volatility Index (VIX)