Online Options Trading - The Intricacies of a Covered Call

One of the easiest trades for a beginner options trader is the Covered Call (sometimes called a buy-write transaction). Trading a Covered Call takes the lowest level of authorization (level 1) and is easy to obtain from your brokerage house. 

What is a Covered Call?

In it simplest terms, it is where you own some stock and sell an option to someone else to buy that stock at a specified strike price to generate some income.

Options Spread

In option trading, there are many option strategies you can use. There are two basic options: call option and put option. Call contract will give the holder the right to buy an asset at a specific price or strike price. Put contract is the opposite. It gives the right to sell an asset at strike price.

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You can combine those two basic options and create lots of strategies. Each option has its own strike price and expiration date. You can buy and sell option with different strike price and expiration date to create many strategies. Those strategies can be categorized into options spread. There are 3 types of options spread. They are vertical spread, horizontal spread, and diagonal spread. Spreads are created by selling and buying options on the same asset.