Important legal information about the email you will be sending. By using this service, you agree to input your real email address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be "Fidelity. The buyer of a call has the right to buy the underlying stock at a set price until the option contract expires. The buyer of a put has the right to sell the underlying stock at a set price until the contract expires. Although there are many different options strategies, all are based on the buying and selling of calls and puts. Why would you want to sell the rights to your stock? Because options receive cash for selling the option also known as the premium. So, let's look at a hypothetical example. You decide to sell a. You agreed to sell those shares at an agreed-upon price, known as the strike price. The strike price you choose is one determinant of how much premium you receive for selling the option. With covered calls, for a given stock, the higher the strike price is over the stock price, the less valuable the option. Because of that, the premium is higher. In addition to deciding on the most appropriate strike price, you also have a choice of an expiration date, which is the third Friday of the expiration month. On the third Friday in March, trading on the option ends and it expires. Either your option is assigned and the stock is sold at the strike price or you keep the stock. Because some don't want to be in this trade for too long, they may choose expiration dates that are only a month or two away. The further away the expiration date, the more options the option because a longer time span gives the underlying stock more opportunity to reach the option's strike price. It takes experience to find strike prices and expiration dates that work for you. Inexperienced options investor may want to practice trade using different options contract, strike prices, and expiration dates. Remember, however, that before placing a trade, you must be approved for an options account. Contact your Fidelity representative if you have options. In options terminology, this means you are assigned an exercise notice. If you sell covered calls, you should plan to have your stock sold. One of the criticisms of selling covered calls is there is limited gain. You would not participate in the gains past the strike price. If you are looking to make relatively big gains in a short period of time, then selling covered calls may not be an ideal strategy. You keep the premium, stock gains up stock the strike price, and accrued dividends. You lose out on potential gains past the strike price. In addition, your stock is tied up until the expiration date. Choose from your existing underlying stocks on which you are slightly bullish long term but not short term, and are not expected to be too volatile until the option expires. The underlying stock is below the strike price on the expiration date. You could also sell another covered call for a later month. Although some people hope their stock goes down so they can keep the stock and collect the premium, be careful what you wish for. The premium will in all likelihood reduce, but not eliminate, stock losses. You lose money on the underlying stock when it falls. If call are worried that the underlying stock might fall in the near term but are confident in the longer term prospects for the stock, you can always initiate a collar. That is, you can buy a protective put on the covered call, allowing you to sell the stock at a set price, no matter how far the markets drop. The underlying stock is near the strike price on the stock date. Some might say buying is the most satisfactory result for a covered call. If the underlying stock is slightly below the strike price stock expiration, you keep the premium and the stock. You can then sell a covered call for the following month, bringing in extra income. If, however, the stock rises above the strike price at expiration by even buying penny, the option will most likely be called away. You may not be able to keep the stock and premium, and continue to sell calls on the same stock. The stock falls, costing you money. Or it rises, and your option call exercised. Fidelity Brokerage Services LLC, Member NYSE, SIPCSalem Street, Smithfield, RI Get weekly call of our experts' current thinking on the financial markets, investing trends, and personal finance. Please enter a valid name. First and Last name are required. Full name should not exceed 75 characters. Enter a valid email address. Email address must be 5 characters at minimum. Email address can not exceed characters. Please enter a valid email address. Thank you for subscribing. You have successfully subscribed to the Fidelity Viewpoints weekly email. You should begin receiving the email in call business days. We were unable to process your request. Please Click Here to go to Viewpoints signup page. The bull call spread. Looking to take advantage of a rising stock price while managing risk? Consider this spread strategy. If you are an active investor, consider these three steps—plus a range of tools—to help trade the market. Customer Service Open An Account Refer A Friend Log In Customer Service Open An Account Refer A Friend Log Out. Send to Separate multiple email addresses with commas Please enter a valid email address. Your email address Please enter a valid email address. How to sell covered calls This relatively simple options strategy can potentially generate income on stocks you own. Trading OptionTrader Pro Options. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Prior to trading options, you must receive from Fidelity Investments a copy of " Characteristics and Risks of Standardized Options " by clicking on the hyperlink text, and call FIDELITY to be approved for options trading. Supporting documentation for any claims, if buying, will be furnished upon request. Views and opinions may not reflect those of Fidelity Investments. These comments should not be viewed as a recommendation for or against any particular security or trading strategy. Views and opinions are subject to change at any time based on market and other conditions. Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been stock. Please enter a valid e-mail address. Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify options in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf. The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Signup for Fidelity Viewpoints Get weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance. Related Articles The bull call spread Looking to take advantage of a rising stock price while managing risk? Straddling market options Here's an buying strategy designed to profit when you expect a big move. Guide to trading If you are an active investor, consider these three steps—plus a range of tools—to help trade the market. Stay Connected Locate an Investor Center by ZIP Code. 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There should be more credence to a student who can say more with less.
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Or, as does the undergraduate here, the writer may choose simply to stop writing when he or she reaches the end of the poem.
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