What's a Covered Call?

What's a Covered Call?

Mastery looked into the tomfoolery coverage on Arena Pharma (ARNA).  Found some stocks that could benefit from a stealth rally including ProShares Ultra Oil & Gas ETF (DIG), Materials Select Sector SPDR (XLB).  All this and more live from the Roxie in 1984.

Interesting that CS chose to downgrade the obesity drug maker on the day of one of the biggest rallies in recent memory.

What's a Covered Call?

The covered call is a strategy where an investor writes a call option contract (sells an option) while at the same time owning an equivalent number of shares of the underlying stock.If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a buy-write.

While you may have heard that trading options is risky business, covered calls are actually a very conservative strategy, and most brokerages even allow retirement IRA accounts to write covered calls.

What's a Covered Call?

What's a Covered Call?

The covered call is a strategy where an investor writes a call option contract (sells an option) while at the same time owning an equivalent number of shares of the underlying stock.If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a buy-write.

While you may have heard that trading options is risky business, covered calls are actually a very conservative strategy, and most brokerages even allow retirement IRA accounts to write covered calls.

What's a Covered Call?

What's a Covered Call?

The covered call is a strategy where an investor writes a call option contract (sells an option) while at the same time owning an equivalent number of shares of the underlying stock.If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a buy-write.

While you may have heard that trading options is risky business, covered calls are actually a very conservative strategy, and most brokerages even allow retirement IRA accounts to write covered calls.

This setup is just too good to pass up. Shares of ARNA, currently trading at $3.10, has a Call Option with a $3.50 strike, May Expiration, trading at $.96 a contract. If the stock trades above $3.50 on May 19th, you'd have a 13% gain on the underlying stock, and a 31% gain on the options contract, for a total gain of 44%.