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 short term time decay.
Possible Strategy: Sell one Weekly XYZ 35 strike call at $.60
- 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.