When to Sell Puts or Calls

Covered Calls -

To refresh your memory,a covered call (Sell to Open) is place on shares or positions you actual hold in your portfolio.

The strategy is to sell Calls when you feel that the underlying stock will stay flat or decline in the near term or you have a significant profit in a security and you feel that the growth or fundmentals have changed; therefore you set a strike price somewhat above the current price, thereby willing to give up your shares in the stock if the price exceed your strike price by expiration date.

Cash Puts -

You place a order (Sell to Open) on a security you feel will be flat or rise in value, chosing a strike price below or near the current trading price. Another approach is to set the strike price at a discount below the current trading price, especially if you would like to purchase the shares at a discount.

Remember never place a trade  (sell to open) on a Put unless it is a stock you wouldn't mind owning in case you get assigned the shares.

The strategy behind selling Puts and Calls is to generate income. As the writer or seller of the option you will receive a premium (cash to you) for the option contract.

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Daniel F. Iuculano, AAMS CMFC

Accredited Asset Management Specialist

Chartered Mutual Fund Counselor