As an investor, your portfolio returns don’t need to rely on market movements to profit.
Using the covered call you could help boost your portfolio returns – especially when the market is flat and prices are moving sideways.
This free quick guide will help you understand:
• What is a covered call,
• How to construct a covered call against stock you currently own,
• Ways that this trade can help generate income from shares.
Free guide - Using covered calls could help generate income from your existing shares.
1. EXCHANGE TRADED OPTIONS
Part 3: Covered Calls
TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
2. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Covered Calls
1
Covered Calls are an options
strategy that can be used to
generate cash using the collateral
value of the shares in a portfolio.
3. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Covered Calls
2
A covered call strategy involved selling call
options to open the trade.
4. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Covered Calls
3
Call options are sold above or at the share
price in the view that the share price will
go sideways to bullish.
5. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Covered Calls
4
Call buyers have the right to buy the
underlying stock.
6. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Covered Calls
5
A call seller will receive a credit to enter
a contract with the buyer
7. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Covered Calls
6
They will be ensuring the buyer that they will
sell stock to them at the strike price of the
contract.
8. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Profiting from Covered Calls
7
To profit we set the strike
higher than the price
paid for the stock, as
well as the current share
price.
Calls Strike Price
Current Share Price
Price paid for stock
9. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Profiting from Covered Calls
8
As a result, if the option is exercised, you will
sell your stock for a profit, plus you keep
the credit received to enter the contract.
10. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Profiting from Covered Calls
9
If the share price goes sideways and is
below the call strike on expiry, the option
expires worthless.
11. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
But you keep the credit that you received
by opening the contract.
10
12. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
An example Covered Call
11
It is May and we own 1,000
XYZ shares that we bought
at $35.10.
13. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
An example Covered Call
12
The share price is trading at $36.00 so we
decide to sell to open a call option with a strike
of 36.50 in June for .60c Credit per option.
14. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
An example Covered Call
13
XYZ Share Buy Price 35.10
Sell to open 36.50 June Call for .60c CR
XYZ current share price 36.00
As we own 1,000 Shares,
we can sell 1,000 call
options or 10 contracts
using 100% of the collateral
value of the shares.
This will create a credit
of $600.
15. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Scenario One - The Share Price Falls
14
The share price falls and is trading at 34.90 on
June expiry. The options will expire worthless.
16. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Scenario One - The Share Price Falls
15
In this situation, you keep the $600 but
the XYZ shares have lost .20c of value or
$200 so you profit $400 even though the
share price has fallen.
17. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Scenario Two - The Share Price Rises
16
The Share price rises to $37.00 on June expiry.
We get exercised on the option so we will sell
the stock at 36.50.
18. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Scenario Two - The Share Price Rises
We will make $1.40 on the stock or $1,400; we
also keep the credit from the call option we
sold of $600.
This equates to be a $2,000 profit for the
month.
17
19. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Scenario Three - The Share Price Falls
The share price falls and is trading at 34.00 on
June expiry.
The options will expire worthless and we keep
the $600 but our XYZ shares have lost 1.20 of
value or $1,200.
18
20. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Risks of Covered Calls
19
The risk is the same as holding the shares, as
if the share price falls then the value of the
shares will go down.
21. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Risks of Covered Calls
20
The credit from the options will
help reduce the loss compared
to just holding the shares.
22. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Risks of Covered Calls
There are many different ways of managing
and timing the entry of a covered call,
which will yield different results.
21
23. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Risks of Covered Calls
22
You need to be prepared to sell the stock if
needed for this trade to work.
24. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Risks of Covered Calls
23
Covered calls can only be made on a stock that
has exchange traded options.
25. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Conclusion
24
Portfolio returns do
not have to rely on
market movements
to profit.
26. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
Conclusion
Investors can still achieve strong returns, even
when markets are flat by selling call options
against stock holdings.
25
27. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate authorised
representative of OzFinancial Pty Ltd, AFSL number 241041
PH: 03 8080 5788
WEB: www.traderscircle.com.au
EMAIL: admin@traderscircle.com.au
26
Interested in becoming a trader?
The right education is essential if you want
to reach your trading goals.
Register with us today to learn more about our
trading education programs.
28. 32
Warnings and important information.
Any advice contained in this communication is general only and does not consider
your objectives, financial situation or needs, and you should consider whether it’s
appropriate for you. If you are thinking about acquiring a financial product, you
should consider our Financial Services Guide (FSG) at www.traderscircle.com.au and
the relevant Product Disclosure Statement (if there is one available) first.
Trading options is not suitable for everyone. There is a risk that you can lose more
than the value of a trade or its underlying assets. You should only act on our
recommendations if you are confident that you fully understand what you are doing.
Past returns do not reflect future returns, and it is also possible to make significant
losses. We employ expert traders and use strategies that maximise returns and
minimise risk. However, there is always a risk of loss when trading and investing. This
is general information, and is not prepared for your specific investment objectives,
financial situation or needs. Consult a licensed investment adviser before making
investment decisions. TradersCircle Pty Ltd, ABN 65 120 660 497 is a corporate
authorised representative of OzFinancial Pty Ltd, AFSL number 241041.