Why Is Writing Call Options A Popular Investment Strategy?

Writing covered call options is a strategy used by many investors. By writing a call option, an investor will sell to another one the privilege of acquiring his stocks for a predefined sum of money anytime during a certain period. To write a call option, one of the prerequisite is that you need to own at least 100 stock shares.

To better understand the concept here is an example. Let's say you own 100 stock shares each valuing $20. You write a covered call option at a premium of $2 which gives the buyer the right to acquire your stocks at a strike price of $24 anytime in a 3 month period time. This means that if in 3 months, the stock price will reach $24, you will lose your stocks for this price. On each share you will make a $4 profit and another $2 for selling the option. If in 3 months, the stock price doesn't reach $24, you will keep your stocks and the $2 for writing the call option. So you can see why writing covered options is a strategy so preferred by investors.

Investing in stocks and writing covered call options on them is a strategy that is really in demand from investors. Finding the best opportunities will guarantee you a nice profit. But before investing in a company, you must know how to find information and details about it so you can be sure that it is a relatively safe investment.

Stock broker reviews are important because they provide important information to potential investors about different companies that will help them find the best online broker for their investment needs. On the Internet you will find many stock reviews about brokers that support stocks, ETFs, options, mutual funds, or similar investments.

By knowing how to correctly analyze these reviews, you will be more aware about the potential of each company, about their strong points and weak points.

One important thing you should always remember is that when writing covered calls, there are many factors that you must take into consideration. One of the most important is the "time decay". The Time decay can be defined as the relation of the change in an stock's price to the decrease near expiration.

An option is a wasting asset which decays over time. As time passes, the option loses its value. But the decay is not constant. Represented on a graphic, it will look like a curve. For example, if you write an option for 90 days, the decay in the first 30 days won't be very visible, but with every day that passes, the decay starts to become more and more noticeable and in the last 30 days being quite obvious. There are many experts who can help you in this field and understand and eventually assess the risks better.