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 at $34.80 

Outlook:                  You are neutral on XYZ stock over the next week and are looking to generate income by taking advantage of accelerated short term time decay.

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

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: Weekly options are listed on Thursday and expire the following Friday.  Based upon your short term outlook, you might consider selling an out of the money weekly call option on a share for share basis on a stock you already own to generate income in a stable market. 

  VIX Snapshot

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