When you invest in ITM or in-the-money covered calls, it can be a safe way to trade. You have the chance to make profits on stocks, no matter which way they go. Here are some ways that ITM covered calls can generate profits for you.
You do not have to own stocks to own options. However, covered call options are only written or sold by those who own the stock, security, or commodity. These kinds of options can be OTM or ITM. OTM is out-of-the-money, and this means that the option cannot be exercised. If an option is in-the-money, it can be exercised as the strike price is lower than the current stock price.
At first, it may not seem profitable to write an ITM option. Yet, when you take a more detailed look, you will see how it works. For example, you but 100 shares of Widgets Inc for $15 a share. You might write an option contract with $14 as the strike price. Perhaps you are expecting to get as much as $2 premium for each share.
Someone may wish to buy your ITM option in hopes that your stock will increase in value before the option expires. It is not a bad investment, as it is already ITM and will not have to go up much to be profitable. Also, there is no need to worry about anyone exercising the option right away, as the premium price more than offsets the strike price.
If your stocks continue to increase in value, you will be required to sell them at the agreed strike price. Yet, you still keep the $200 premium on the sale of the option contract. Even though you lose $100 on the sale, you still gain $200 on the premiums. After broker fees you still could be ahead.
If the stock drops or stays the same, the option will expire. You keep the stock and you also keep the $200 premium. You can sell options on the same stock next month, if it does not drop too far. In fact, if your stock drops, you may try to sell options with a higher strike price, but it may be difficult in some cases.
If you are thinking of investing in stocks, securities, or commodities, there are a lot of choices to consider. Covered calls can be a safe and effective investment. In the money covered calls can be a good way to make cash on stocks that you expect little change. They will be easy to sell and you can make a profit no matter what happens.
Born To Sell, https://www.borntosell.com/, is a web site dedicated to covered calls. If you sell in the money covered calls then you limit your upside potential to just the time premium part of the option.