Scope

• • Basics of call option contract
  • Learn a better way to sell shares at higher than current market price
  • How to generate consistent dividend income using call option

Homework

Homework for Drill #2 – Generate income from the shares that you hold by selling covered call

• Enable Options Trading in a brokerage account.
• Sell a cash secured put on the stock that you won’t mind owning 100 shares – if you didn’t do after Drill #1.
• For existing shares in your portfolio, sell a covered call i.e one call against 100 shares at the price you want to sell the stock.
• Do this in your paper trading account.
• Please share your paper trades with me in the #boot-camp channel of Slack group Or via response to this email.

Due date for homework : Apr 30,2024

SAMPLE TRADE I did in paper trading account today
Markets were in red because of META results and SHOP is now at a price point that I won’t mind owning it.
So, I bought 200 shares of SHOP at $70.62
My intent : To own SHOP for long term, but I want to generate some income from them
Trade : Sold a 1 contract of call option at $95 for June expiration (57 days away) and collected $1.16

Scenarios at expiration:

• If stock goes beyond $95 : 100 Shares will be called away and it would result in 36% RoI in 57 days for those 100 shares. I will still have 100 shares available in my portfolio to enjoy the further upside if it continues to go higher
• If stock stays between $70.62 and $95 : I keep the $116 with me. This is the income that I have generated from selling the covered call.
• Stock closes below $70.62 : Portfolio will be in loss, but the loss is reduced by $116. The covered call premium serves as a cushion against the drawdowns.