Selling Covered Call Example on Fidelity Investments

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What Is a Covered Call?
A covered call refers to a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security. To execute this an investor holding a long position in an asset then writes (sells) call options on that same asset to generate an income stream. The investor's long position in the asset is the "cover" because it means the seller can deliver the shares if the buyer of the call option chooses to exercise. If the investor simultaneously buys stock and writes call options against that stock position, it is known as a "buy-write" transaction.
Understanding Covered Calls
Covered calls are a neutral strategy, meaning the investor only expects a minor increase or decrease in the underlying stock price for the life of the written call option. This strategy is often employed when an investor has a short-term neutral view on the asset and for this reason holds the asset long and simultaneously has a short position via the option to generate income from the option premium.
Simply put, if an investor intends to hold the underlying stock for a long time but does not expect an appreciable price increase in the near term then they can generate income (premiums) for their account while they wait out the lull.
A covered call serves as a short-term hedge on a long stock position and allows investors to earn income via the premium received for writing the option. However, the investor forfeits stock gains if the price moves above the option's strike price. They are also obligated to provide 100 shares at the strike price (for each contract written) if the buyer chooses to exercise the option.
A covered call strategy is not useful for a very bullish nor a very bearish investor. If an investor is very bullish, they are typically better off not writing the option and just holding the stock. The option caps the profit on the stock, which could reduce the overall profit of the trade if the stock price spikes. Similarly, if an investor is very bearish, they may be better off simply selling the stock, since the premium received for writing a call option will do little to offset the loss on the stock if the stock plummets.
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#Fidelity #CoveredCalls #TradingOptions
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.
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[@JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here! kzbin.info/aero/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

[@mariohenriquez4339]

Thank you for doing this video. I needed to SEE how it was actually done on Fidelity. Most of the videos I've watch just say, "just close the option" and things like that but sometimes it is hard to figure out exactly what is being said and where you need to go to do it. Thank you.

[@zuojane3805]

I sold my first covered call guided by your step by step tutorial, thanks.

[@edtravelbug]

I did not truly understand covered calls and how to do them on Fidelity until I watched this. Thanks so much for spending the time to put this together.

[@ebgwd]

Have traded options before and you do a much better job of explaining than I. Fidelity should add your video to their FAQ. Thanks.

[@robertgray320]

Thanks for the video, much appreciated. Will be writing calls for the first time today. Your video was exactly what I was looking for, simple and straight to the point.

[@MrNetsecure]

This is the best course on option trading out on the internet. Period!!! Thank you so much for creating this amazing content. These videos taught me option trading a few years ago and i still watch them time to time to revise my knowledge. Thank you Jake! Im a seasoned trader now just because of you!

[@NICKYMGTV]

Obligatory support for Jake. Hello KZbin. Take this video to the moon. I watched the whole thing let’s get that retention time!

[@JakeBroe]

Haha, thanks so much Nicky! A comment from you is definitely going to catch the eye of the algorithm for this video!

[@simba9225]

You are the best at explaining the detail process. Hands down. Keep up the good work Thank you

[@Theextremepessimist]

I don’t see many people explaining this on the options chain so thank you for that.

[@Nomarii]

Exactly what I was looking for. Thank you!

[@Delayednoise]

MAN OH MAN!!! the video i been looking for! thank you for this!

[@Endeuda2]

Liked & leaving this comment for the algorithm! Great video Jake. It is so easy to trade Options on Robinhood, but always the big brokers look so much more intimidating! Thanks for the explanation :)

[@JakeBroe]

Thanks for the comment for the algorithm Endeuda2! I appreciate you becoming a channel member. I greatly appreciate it!

[@fokker4uify]

Thank you, Jake...exactly what I was looking for.

[@GEN-X-]

You were very clear here. Thank you!I now feel comfortable seeking my first covered call.

[@bartholomewsmith3250]

10/10 explanation. Appreciate it!

[@durango24k]

Great video. Thanks for that clear explanation of covered calls.

[@matthewsherwin8741]

Excellent video as always, Jake! Covered calls are a great strategy in my opinion. I’m grateful to you for teaching me so much about these types of transactions. I used to know this in the late 1980s but I stopped trading stocks after the mid ‘90s so obviously with time I forgot some of this. Thanks a lot and have a great day!

[@JakeBroe]

I am glad to offer you a refresher then! Cheers Matthew!

[@Brently]

Thank you! Very simple to understand.

[@saralove345]

i love the way you communicate super helpful thank you!

[@orangeblock3792]

These explanations are fantastic!

[@chrismaloy]

Jake - you are awesome man. I love watching your content and it is so informative.

[@26SheaD]

This was a great explanation Jake, thank you!

[@JakeBroe]

You are very welcome! Cheers!

[@hustletradinginvesting8453]

Thanks that so easy to understand. I currently training with a UDEMY options training. and its so dam complicated it makes me not want to finish the training. Your video was simple and to the point.. I appreciate it...

[@jebssan9]

Thanks Jake. I need to study this some more!

[@aurinator]

Great information thanks for creating this! These are the sorts of instructions I think they should host themselves rather than relying on KZbinrs to create them.

[@scottbaker9985]

Thanks! This was very helpful!

[@inea-fijourney22]

thank you for this! It was the specific video I needed!! Will start selling cover calls as soon as I reach 100 shares!

[@santosnino]

Great video I have been trading a couple years and recently applied for options on my account. Thank you for taking the time to make these videos. I just subbed as well.

[@TwoStupidGuysTradeStocks]

You sure did call that sell off in BAC after earnings! Strong work as usual Jake!

[@JakeBroe]

Haha, a small dip, but I think BAC is fine. It will probably go to all time highs again next week.

[@madhuvamsimachavarapu5267]

in love with this channel......

[@Anderson-wf6ok]

Thank you sir, this was an excellent video!

[@JakeBroe]

Thanks for watching Herb!

[@sumitdavre]

@jake- great video .when your shared called away. Does fidelity sell it automatically or you need to login and click some buttons?

[@lukehowerter]

Selling my first covered call. Your back catalog is an awesome resource.

[@JakeBroe]

Thanks Luke! Glad you found the channel and I appreciate the support!

[@krmullen1]

Refreshingly straight forward.

[@JakeBroe]

Thanks Kevin! Cheers!

[@Bombay_BadBoy]

This is amusing thankyou

[@michaeldunn5197]

This was an excellent video. Thank you very much.

[@JakeBroe]

Thanks for watching Michael! Cheers!

[@aaahoang]

Great lesson! Better explained than so many out there. Thanks Jake. Would you do one of the strategies like iron condor etc. some day...

[@JakeBroe]

Hey Mai! Yep, more options videos are coming eventually. The Wheel Strategy and LEAPs are next!

[@Bangpaulxu]

Jake, you deserve more than 100k subs with this awesome content.

[@JakeBroe]

Haha, I think I will get there by the end of this year!

[@FridayNightArcade]

Thanks for this 🙏

[@jasonkojack9423]

Great video THANK YOU

[@svenwinkler5652]

Jake could you do a video on rolling option calls on fidelity? your content is fire! thanks for all you do man great work!!

[@crystalcrawford2317]

exactly what i needed

[@JakeBroe]

Thanks for watching Crystal! Cheers!

[@ginamoreau3651]

Very helpful !! Thank you !!

[@JakeBroe]

You are very welcome Gina! Cheers!

[@rndoune]

very helpful! Thanks

[@juniorstockinvestor6356]

Awesome video! Thank you so much! Just one question, when you collect the premium, does it go right into your money market account? Also if i do this in a roth ira does the premiums I collect count as contributions?

[@StallionRocker]

awesome learned alot thank you

[@bighunter2837]

I use fidelity as well and just starting selling outs and covered calls. Do you have a video that better explains how to read the contract like you did at the end before buying to close. I'm looking to better understand how I know how much of the premium I've made to help me decide if I should buy to close early. Also if your shares are called away is it don't automatically by fidelity or is there something you have to do? Also with selling a put, if the shares are assigned to you is it automatically or is there something you have to do? Thanks and great videos!

[@chico-ub3ub]

thanks for the video

[@VikasKesavan]

Liked & subscribed. you explained it well !

[@JakeBroe]

Awesome! Welcome to the channel Vikas! Great to have you with the channel!

[@ForgeofSouls]

Can you please explain in the writing process what the difference is between the selection of trade type: margin or cash?

[@ghejamly3945]

Thank you so much appreciate it

[@minorleagueroadtrip6224]

Thanks for this video. This video helped ne sell my first covered call a couple of months ago. I've sold quite a few now and it's opened up a whole new world. Also, thanks for the Ukraine updates.

[@pawansingh5319]

Jake- I just placed a covered call order- very detailed awesome video.

[@JakeBroe]

Thanks for watching Pawan! Glad you got it figured out!

[@headlibrarian1996]

Is the option chain configurable? I noticed it didn't have some things I consider important, like extrinsic value.

[@roaldchetty]

Appreciate the quality video Jake. Can you give any insight into how Fidelity treats/settles selling shorter term expiration calls on LEAPs?

[@bhalanjaprem-voiceofvoicel111]

Hey jake you are doing awesome job

[@JakeBroe]

Thanks Prem! Appreciate that!

[@knapz665]

Do I need to do anything on expiration date if stock price is above strike price and have not been assigned?

[@bobbysturgeon6239]

Love your videos. It would be great if you could provide a glossary of terms you use in your videos in the description so we don't have to leave your video to look up a term.

[@BigBry4n]

Thank you

[@Wisco_Nick]

Great video for the fidelity platform which I’m just learning how to cover call in. I’m still a little fuzzy on all the individual items that are listed in my call breakdown. I think you explained to us that the cost basis added to my strike price give me the break even? I’m not clear on what my total gain/loss $ and % represents just yet however 😂. I guess as long as my strike beats the cost at expiration I’m good to go. 🤷‍♂️

[@tomtom4903]

The best vid. I wacth cover Call

[@JakeBroe]

Thanks tom! Cheers!

[@phillyboylaboy]

Can you select from stock lots? Ty🤔

[@TheSpizzzzz]

Great video. Very informative. So as long as I have over 100 shares of the stock I'm selling the call for if it gets exercised they will just take my shares? And the area that says risk is unlimited would be false as long as I still hold the shares?

[@bradbugado4814]

Awesome vid. Answered all my questions regarding selling covered calls. So when I close the covered call I don’t lose any $ or shares? Definitely subscribing to your channel. 🤙🏽

[@toandinh4466]

Thank you for the tutorial. At 7:09 Is there chance you won’t get your premium if the covered call was never filled by bidder for whatever reason, assuming the bid price is “reasonable”?

[@SlickNickster]

Thank you! Definitely considering your SPY covered call strategy.

[@JakeBroe]

It's a solid strategy if you can afford the 100 shares! Cheers Nick!

[@SlickNickster]

@@JakeBroe Do you have any data on how the SPY covered call strategy is affected by being in a taxable account? I can see it doing really well in the Roth IRA but I don’t have the funds built up in there yet for it. I’m worried that in a taxable account getting exercised on will wreck the profit from capital gains tax and then it would’ve just been better off as a buy and hold investment.

[@miguelrojasjr2933]

Hello, do you the premium up front with Fidelity ? I know with RH you do and since I’m new to Fidelity I thought I would ask! Thanks and great video!

[@andrewsolis3349]

Great video!

[@JakeBroe]

Thanks Andrew!

[@Haylem]

awesome!

[@kenwilson8024]

Appreciate you making this video! Have a question 🙋🏻‍♂️ also. If you were to buy the covered call with the strike price at 37 in the money, could the person who bought the contract immediately exercise it or do they have to wait the 17 days? Thank you

[@picklerpickler8785]

Thanks does fidelity keep track of your profits on covered calls and puts ?

[@MiguelRPD]

Did my first covered call on HYMC 😁 gonna start small and learn the ropes !

[@JakeBroe]

That's awesome Miguel! Just takes some practice. Thanks for the support! Cheers!

[@dinhtran426]

Hi , Jake I’m new for option , I have Quetion , I have some individual stocks . and I sold secure put same stock , what happened if I get assigned ? Thank you

[@tennischesslover]

Thank you very much for the video. Very useful for a newbie like me. Can you explain about "Trade Type " and what the difference is between a "Cash" Trade Type Vs a "Margin" Trade type and which one is best? Another Question - why does it show "sell to open" on my fidelity under both "Bid" and "Ask". I'm only interested in covered calls and I wanna know if I should put in my (Sell to open) order under the "Ask" or "Bid". Thank you

[@sp6209]

Thanks for the informative video, Jake! Love Fidelity overall, but man, their UI is a mess (imho); really appreciating your walkthrough here!

[@Eli-ru9rb]

❤❤❤thanx

[@brandonj.9638]

*Please answer* Hello Jake, I am wanting to write my first covered call on Fidelity. Everything you explained makes sense. My question is this, what is your default disposal method for your options trades in your account when you do this? I own several hundred shares of a stock and the cost basis varies widely. I happen to have 100 shares that are near the current price that I would like to sell if my covered call gets assigned. As a result, I want to make sure it is those shares that are sold and not my shares with a lower cost basis to create a huge taxable even, nor my higher tax basis and I sell for a loss. I went over the disposal methods on fidelity for trades but do so see an applicable disposal method to set as my default. What do you do? Thanks.

[@777shortino]

Great info. So a good strategy would be to always buy 100 shares of stock you like at a time and immediately sell covered calls at a higher strike price.

[@JakeBroe]

Well, make sure it is a good stock. You don't want to buy 100 shares of a stock that is crashing. Covered calls won't save you. But yes, if it is a good company and a good stock and don't mind selling for a profit and the premium, then I would always be selling covered calls.

[@MuzixMaker]

@@JakeBroe excellent content! How about buying an index fund like QQQ and mirroring QYLD except a higher potential profit?

[@Swara96]

So I sold 3 covered calls for nio for December and collected $1000 for $50 strike price. If by next week, month etc nio hits $50 and above, do I still profit on my long position past $50 or only up to $50? And will they exercise it immediately at $50 or do I have to wait till December while missing out on the difference past $50? Thanks

[@cvillejin]

Thanks for the video. I have a few questions. In this example, say that April 16, 2021 rolls around, and the contract expires OTM at $39 or below, do you NEED to "Buy to close"? or can you simply do nothing, since the contract is already expired and you don't need to deliver the shares? Second question, if the contract ends up ITM and exercised, how do you "deliver" those shares to the buyer of the options contract? Also, can you specify which lot of shares you want to "deliver"? (Because I would want to deliver the 100 shares with the highest cost basis, not the lower cost basis).

[@pepekaliwete]

@cvillejin - excellent questions. I'm on Fidelity as well and trying to learn options trading. Did you ever get answers to your questions? If yes, can you share them here? Thanks.

[@gawtwins1]

Do you usually let your covered call expired or do you close it early?

[@suthamm]

If you sold the covered call contract, does that mean you cannot touch that underlying 100 shares of BAC under the contract?

[@brianthenurse3027]

So since I have 120 shares of a stock it is telling me that I will have an uncovered cash position I don't know what to do with that? Can you help?

[@Watdamarin]

When you buy to close do you still keep your premium?

[@ChickyRx]

great videos thanks !!

[@ccgb92]

do you know if fidelity auto sells like robinhood, or do they let the options expire worthless?

[@YourAmazing168]

Hello Jake Broe.. In this Covered call you get premium 75$ right away after it filled sell to open and when you close out Buy to close.. will there any premium involved? How about if there is BAC dividend in that week will there be any dividend complication?

[@Jeff-gt2xu]

I probably missed the answer in the video (3 times) but did it cost your anything when you closed your contract?

[@herbertwendt7886]

I am learning about selling covered calls. I understand the Max gain is listed at $74.00 why does the Max loss show unlimited? can you explain this further?

[@Andrew-rl4bv]

never got to the part where you BUY TO CLOSE, and lost out. Tough lesson, but a lesson nonetheless. Thanks!

[@Cali_Oasis_Garden]

should my strike price be higher than my cost basis?

[@synapseeinherjar4031]

How come when you sell it it says its a margin exchange?

[@shb377]

Great video Jake. I'm also very eagerly waiting for the video on how you pick such wining stocks like NOC, HD, DG etc etc. Also, did you buy any new calls recently?

[@JakeBroe]

Hey Shiv! Nope, I have not taken any new positions lately. I am still in 14, which feels like a lot. I have a couple videos coming this week on how I evaluate and pick stocks.

[@freddiejonesy6168]

Winning!

[@JakeBroe]

Cheers Freddie!

[@Passions]

Since you sold your cover call at 0.75 and then bought to close at 0.76, does that mean you lost money in the end?

[@kalasag9113]

What does being "called away" means? What happens to my shares?

[@bt9148]

Hi Jake, Thanks for the video, I received an assignment to buy 100 shares of Paypal. However, I am not sure why it is on the Margin account instead of using my more than available cash account. Any thoughts on this? I also see your BAC is on margin account. Regards, B

[@Haylem]

Why does my total gain say green but my current value is severely down and my last price is down? Covered call $60 , and it ended up low $50s?

[@user-dr7er9kk3l]

When you click “call “option, how do you know it is “sell covered call “, not regular “call “ option. my Vanguard account has “sell covered call “to choose, but Fidelity seems has no such to show, only “call” to choose, I am new to this, Thanks for your video , I have Fidelity account .