Selling Covered Calls (2)

We have already talked about selling covered calls in the previous post, but let's beat the subject to near death.

The million dollar question is which stock should you buy to sell a covered call? Well, you gotta be able to get a premium of, let's see, at least 100 dollars with an expiration date of, let's see, no more than one month (you don't want that stock to be tied up for too long) and a strike price higher that the current stock price (or at least higher than the price you bought it for but only if you don't mind the stock to be called away). So, what are you contemplating selling exactly? An out of the money call option with a pretty short life.

How do you get a good premium with the kind of calls we are looking for? Well, since we assume the stock should not be too volatile, we gotta be looking at expensive stocks, not the kind that you can buy for a mere 1000 bucks (10 bucks a share). The premium price is directly related to the stock price (among other things), so it's no surprise the cheap stocks have lousy premiums to offer for the calls we want. Yep, it's not that simple.

I mean it's nice to sell covered calls but it's gotta be worth your while, otherwise what's the point? Exactly.