How do you determine a stop price when selling a covered call for that stock?

Answer 1

When you sell a call, you can't set a stop price. But, you can pick one of the different striking price levels available for the call option trading on a specific stock. What strike price level (more or less out of the money) you select depends on how you perceive the outlook for your stock. And, what do you want to achieve.

If you feel that the stock has a moderate or low valuation, you view the downside risk as low and the upside potential as fairly high. In such a case, you could sell a call with an exercise price way out of the money just to increase your yield on the stock by receiving the premium on this call. This also depends on the volatility of this stock. If it is really not that volatile, you may want to set the exercise price not so far out of the money, so you earn real money on the premium.

If you think the stock is expensive right now, you may want to select the exercise price close to being in the money. By doing so, you will receive a fat premium that will cushion your downside risk.

If you need any clarification, contact me through "Answer" and I'll revise my response accordingly.

Answer 2

You don't. The strike price (AKA exercise price) is part of the option contract. When doing covered calls, you usually use a strike price that is at or dlightly out of the money.

Let's look at an example. Suppose the stock price is at 28. Then there are probably options available where you can sell for 25, 30 and 35. The one at 25 will probably get exercised (unless the stock drops a lot). If you sell it, you will get the $3.00 that it is in the money plus a small premium. When it gets called, you sell it for 25 -- and you aren't much better off than if you sold the stock now.

The options at 30 though will offer you a nice premium -- let's say $3.00. If the stock stays below 30, you keep the stock and pocket the premium. If it gets called, then you sell at $30 -- but add in that $3 per share. It is more like selling at 33.

If you sell the calls at $35, the premium won't be as good. It is less likely to be called, though -- so you might be able to sell covered calls again.

Answer 3

No, you'll discover the present value is categorized "very last commerce value", that is the price that the merely right commerce became at. once you position an order to promote it's going to be compared to the orders to purchase (bids) and also you will get the utmost value from those orders that meet your criteria, if none of them meets your criteria, your order to promote turns into an ask to be when compared with even as a clean order to purchase is provided in. this isn't a food market, you aren't any more entitled to the price that you be conscious, you won't be able to assert the price became contained in the flyer. even as a inventory crashes, human beings would evaluate it lower than valued and certain to flow up by the years, to those human beings that is an danger to purchase at good purchase prices. Warren Buffet is this kind of persons. large transactions by utilizing the very wealthy get damaged up and the products offered among different orders at random therefore hiding who's doing the transaction even from the investors themselves. that is between the amenities of a strong broking service to anonymize their purchasers as a lot as accessible.