Video #7 in our new 7-part series, featuring Roger Michalski and Bryan Perry.
VIDEO # 7 TRANSCRIPT
How To Sell Covered Calls after Buying the Underlying Stock: Live Demo Trade
ROGER: Hi This is Roger Michalski of Eagle Financial Publications. I’m here with Bryan Perry, editor of the Quick Income Trader. Bryan, we have a great series of videos to talk about your covered call strategy, but now can you sit in front of a computer and walk everybody through step-by-step how to make a trade?
ROGER: Alright everybody, don’t blink or you’re going to miss it.
BRYAN: Hi, Bryan Perry here walking our viewers through a live trade on what is called a virtual trading platform. In this instance it is with Options Xpress, part of Charles Schwab, using our example of CyberArk our cyber security software stock down here: ticker CYBR. We bought the 200 shares in the account so we’re currently long 200 shares of CyberArk, and I simply just want to walk you through the easy part of the covered call trade.
We’re going to go up to our trade tab — these trade tabs are on whatever online brokerage account you are working with. And we’ll simply go to the options selection here and open that up, and what we want to do is use our stock of CyberArk (CYBR), and put that symbol in where it asks for the symbol. Come down to the action and we’re selling calls against this position here. So we want to sell calls to open up, and then we want to choose which particular covered call we want to sell. And so since the stock is currently trading currently at $52 a share and change we want to sell some “out of the money calls.”
So if the stock rises we can still make some money on the upside in the form of capital gain. So we’ll come down here and just open up your drop down list: it’s as simple as just clicking this arrow here next to the strike price. Since we’re already on August, let’s go to September, the next month out, and let’s choose a strike price that is out of the money or just above where the stock is currently trading. In this instance it would be 55 since the stock is trading at 52 and we’re going to sell the call, the September 55 call. And we’re going to sell to open, then we’re going to sell 2 (a quantity of 2) representing 200 shares. Remember, 1 option contract represents 100 shares of stock. Since we’re long 200 shares of stock we’re going to sell 2 covered calls, and here’s the bid for the option at $2. 65 and then here’s the ask of $3. 10.
Just for the sake of making this an easy trade we’ll go ahead and sell these at market. We can put a limit order in and put our limit price here and we can do other different things that are more sophisticated. But for the simple purpose of just getting the trade off and doing it as an easy sample example, then we’re going to go ahead and sell these at market, and we’re going to try to bring in $265 per contract. It’s quoted as 2.65 but in real dollar terms that $265 a contract, so we’re going to preview the order and then we’re going to sell to open just as the tab up here says. 2 CyberArk September 55 calls, at market, and we’ll see how we do here on the fill-up, and the total commission of $14.95.
This is what we’re looking to bring in, folks: $545 in immediate income is going to hit the account right after I click this particular tab. So let’s make this trade go off here, place our order, and then we’ll go back and check our order status, come back to our account here and see if it’s filled. And it sure has, look at that, there’s our stock and there’s our CyberArk September 15 covered calls. We sold 2 for an average price of $2.65, and we have a total value of $590 in the account that’s already come in just from the stand point of selling that covered call. That’s as easy as it is, folks, you simply place in the covered call over the stock you currently own, making sure you sell a like number of calls, for a like number of shares, and just following my trade parameters. Whether it be a market order or a limit order, and bringing in the money that credits your account instantaneously. It’s as simple as it gets and it’s the best form of option trading that I know.
ROGER: Wasn’t that easy? You see how quick it is to make a trade. Very simple and just like that you have income into your portfolio. That’s very wonderful and that’s exactly what we’re going to do in Quick Income Trader. So Bryan, tell us a little bit more about Quick Income Trader.
BRYAN: Well, it’s a weekly service. So you’ll be notified once a week. I’ll give you a quick background on the trading landscape and we’ll go over the portfolio that’s in play, currently the trades that are on, and any new trades with all the perimeter set up. So it’s really just it’s just a matter of taking 10 minutes out of your day, get a cup of coffee, put in your limit orders, and just let it ride on a good until cancel basis. This is one trading service that doesn’t involve a whole lot of sweat equity. This is really the best part of it, Roger, is that I lay it out very easily for everybody and your money is working for you all the time. This is one strategy where money never sleeps.
ROGER: Yeah, that’s terrific. And the response to Quick Income Trader has been overwhelming. The customers have been loving the income stream that you’re producing for them, and we’d love to have you part of Quick Income Trader. To learn more about this service, click the link right below this video.