We like to focus on a consistent watch list of products over time. As the expiration date comes closer, the anticipated future price becomes more defined. However, you can use options to do just that if you want. Required fields are marked *. I placed my first Call option today but I did it wrong. This is fairly self-explanatory; it is also known as a “Sell to Close.”. In most cases it will be best to close out of an options position before they expire. A final note: Trading options involves risk. In fact, selling a call can be quite risky. Don't let that overwhelm you, however. Do you know how to sell a call? It's important to remember that not every trade is going to work 100% of the time. Make sure you've looked at the charts and have  a good indication that a stock is going bearish. Options can be used to trade many types of underlying assets, the most common categories being individual stocks and Exchange Traded Funds (ETF’s). Isn’t it very unlikely that with only a few weeks left to expiration that YHOO would climb $3 and your YHOO stocks would be called away? A successful investor knows the cues for turns in the market and uses both his technical knowledge and intuition to position himself well. Meanwhile, Mr. Bull is hoping that GOOG closes well above $610 by the third Friday in January. The option can be closed out any time before it expires allowing profits to be booked. They make money by pocketing the premiums (price) paid to them. That way, should the buyer wish to exercise his contract, you are not obligated to buy the asset at the current price on the market (this strategy is called an uncovered or “naked” call option). The goal of trading options is to anticipate the future price correctly and make a profit from short term directional movement in the price of the underlying stock or ETF. However, when you sell a call, you're obligated to sell the shares of the stock to the buyer at whatever strike price you agreed upon. There are two types of call options you can sell: Covered call option Naked, or short, call option We recommend focusing on risk defined options trades that will allow you to make a nice return while limiting the risk. 1. If the buyer paid $345 for a call and price fell, you'd get to keep the $345. This type of transaction is called a "Sell to Close" transaction because you are selling a position that you currently have. A call option, often simply labeled a "call", is a contract, between the buyer and the seller of the call option, to exchange a security at a set price. You may be wondering what all that has to do with wanting to sell a call. With options contracts, it is no different, and the decision to write, hold, sell or exercise can be confusing – especially because options contracts are impacted by more than just movement in the price of the stock or ETF. On October 10th, if YHOO is still at $27 then the October $30 call would probably be trading at $1.10 or so. Options allow us to place directional trades that reflect our anticipated move in the price of the stock, index, or ETF. Short calls, on the other hand, are for bearish outlooks, and are simpler to make a profit on, but also come with unlimited risk. Mr. Bull immediately gets filled at $5.10 and pays $510 for the GOOG January $610 call. This allows us to get to know the products that we trade which can allow us to quickly form an opinion of whether to be bullish, bearish, or neutral on that stock or ETF. General tips for predicting a Bear Market in any asset category are: These signs can help an investor in options to know, or to forecast, when would be an excellent time to earn premiums by selling a call option. Mr. Pessimist has now received $500 for writing the call option, but he has also lost $1000 because he had to sell a stock that was worth $620 for $610. Focus on creating consistent returns over going for the home run trades. If today was October 1st and you owned 100 shares of YHOO, would you like to receive $25 to give someone the right to call the stock away from you at $30? If the seller of the call owns the underlying stock, then it is called "writing a covered call." You are also responsible for selling the asset at the strike price, should the buyer choose to exercise. You'd get to keep the premium. Hi Mina. By doing this, you relinquish your rights to buy and remove yourself from the contract. That means that if price went up instead of down, the buyer gets cheaper shares and you're out. Once you reach that goal, close out the trade. A covered call, for instance, involves selling call options on a stock that is already owned. However, don't let that deter you from selling. Therefore, when trading, buying, or selling options contracts, it is essential to remember that your contract is only valuable concerning the price of the underlying asset. This would be the case if the buyer, who now holds the call option, changes his outlook from bullish to bearish.