How to Make Money Both Ways When Stocks Go Up Or Down!
By selling a covered call is most useful when the market is extremely volatile and if you are expecting a big movement in stock in either direction. This strategy is most useful when the market is extremely volatile and if you are expecting a big movement in stock in either direction.
Sell a call at a strike price close to the trading price of the stock. Sell double or more numbers of calls out of money at one strike price higher than the one which is sold. Make sure that the net result is a credit. Both the options should be expiring in the same month and they should be far off in time period. Since the net result of this strategy is that you have more number of calls which are longer than the ones which are short, your net result is positive if the stock moves strictly upwards. But if the stock does not move upwards and rather moves downwards, it is still OK so far it makes a strong downward movement. If the stock closes somewhere between the strikes prices of long call and short call, you tend to lose money.
The amount of the money lost shall be dependent upon the closing price of the stock. If the expected move in the stock price does not occur, both the positions can be closed by taking a small loss. One of the largest advantages of this strategy is that the time decreasing factor of long positions is eliminated to a good extent. The following example show as how this strategy can be used for call options. But if you are bearish, same strategy can be used for puts as a mirror image of the call spreads.