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Yes they are termed Covered Calls.Contracts must be sold on the ASX for a minimum of 1,000 shares per contract. Only certain brokers let you write covered calls & there is a brokerage fee that applies!You have to be careful about which shares you buy to write the calls because you need enough liquidity in the options market.You CAN sell the shares before the covered calls you've written expire.In this situation you are left with what is known as a Naked Call.The usual practice when writing covered calls is if you sell the shares you buy back the call options at the same time so you're out. This is much safer.Note that it is easily possible to get burnt with covered calls.Firstly if you have 100 shares of a stock at $10 and write a 1 month covered call at $11.50 (getting paid 40c for the call or $400)....if the share goes above the $11.50 mark it may (not always) be exercised. At this time you get the extra $1.50 per share - sounds great right...you can't lose.BUT if the share keeps rising you have to dig into your personal cash to buy another 1,000 shares of the stock and are in the position where it can cost you more to buy back in than you receive in 'rent' from covered calls for a number of months.....ALSO if the stock is fundamentally unsound, it can keep falling to the point where you are not making enough on the covered calls in a year to cover the capital you've lost in the share price.....Davnet is one stock where I know this happened to people.Covered calls are best used on sideways & falling stocks with solid but not flashy fundamentals & good resistance lines.That way you don't run the risk of being forced to use your own cash if the stock is too successful or losing your original investment if the stock is too unsuccessful.Cheers,Aceyducey
Yes they are termed Covered Calls.
Contracts must be sold on the ASX for a minimum of 1,000 shares per contract. Only certain brokers let you write covered calls & there is a brokerage fee that applies!
You have to be careful about which shares you buy to write the calls because you need enough liquidity in the options market.
You CAN sell the shares before the covered calls you've written expire.
In this situation you are left with what is known as a Naked Call.
The usual practice when writing covered calls is if you sell the shares you buy back the call options at the same time so you're out. This is much safer.
Note that it is easily possible to get burnt with covered calls.
Firstly if you have 100 shares of a stock at $10 and write a 1 month covered call at $11.50 (getting paid 40c for the call or $400)....if the share goes above the $11.50 mark it may (not always) be exercised. At this time you get the extra $1.50 per share - sounds great right...you can't lose.
BUT if the share keeps rising you have to dig into your personal cash to buy another 1,000 shares of the stock and are in the position where it can cost you more to buy back in than you receive in 'rent' from covered calls for a number of months.....
ALSO if the stock is fundamentally unsound, it can keep falling to the point where you are not making enough on the covered calls in a year to cover the capital you've lost in the share price.....Davnet is one stock where I know this happened to people.
Covered calls are best used on sideways & falling stocks with solid but not flashy fundamentals & good resistance lines.
That way you don't run the risk of being forced to use your own cash if the stock is too successful or losing your original investment if the stock is too unsuccessful.
Cheers,
Aceyducey
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