How to Manage Covered Calls (And Make More Money)

If you're looking to generate income and hedge against declines in the stock market, then trading covered call positions might be for you. In this video, I'll teach you a few ways of managing covered call trades.

Covered calls do not require active management, as they don't add any risk to an existing stock position of 100 shares. But there are ways that you can strategically manage positions depending on how the stock price moves.

0:00 Introduction
0:12 Video Topics
0:48 Trade Example #1: Bearish Stock Price
3:08 ALWAYS Manage Your Trade in This Situation
4:34 Trade Example #2: Neutral Stock Price With a Surprise
7:32 Trade Example #3: Bullish Stock Price
8:52 If You Get Assigned on the Short Call... (Do Not Fear!)
9:53 Exiting Covered Calls in a Bull Run
13:14 Trade Example #4: Up & Down Stock Price
17:11 Assessing Early Assignment Risk
19:23 Visually Analyzing Early Assignment Risk
23:48 tastyworks Brokerage

The #1 way to manage covered call positions is to buy back the short call when it nears the maximum profit potential. By doing so, you'll secure the maximum benefit the short call offers while removing the risks of holding a short option.

In other situations, management largely depends on the specific stock price movements (and how quickly they happen). Of course, you can always do nothing and not actively manage trades at all! But hopefully, the ideas presented in this video will help steer you in the right direction if you want to actively manage your options trades in the future.

== Recommended Resources/Videos ==

=== Preferred Brokerage ===

I use the tastyworks brokerage platform for my stock/options trading (or simply investing in stocks long-term). Why? They have incredible commission rates for active options traders, free stock trading, and easy-to-use software without overly complex functionality.

[JayRappa]

I think on of the advantages of a covered call strategy is being exercised. As long as your strike price doesn't justify for a realized loss at expiration, you come out with a wining trade + the premium collected. Seeing the type of movement the market has right now, I'm amazed more investors don't sell covered calls, especially with swing trades. Either way, great video as always. Your explanation are both informative and easy to understand. I wish I found this channel when I started out lol

[SetFreeByTruth]

Excellent video! Love the graphs and thorough coverage of scenarios.

[LincolnOlson]

A tool every options trader should have in their tool belt! Great video!

[behrensf]

I think what you need to look at is the remaining marginal APY on the covered call. in other words, what how much more is there left to earn vs how much time left until expiration. if you sell a covered call for 30 days, and you made 50% of the premium value in the first 10 days, then buy to close, but if there are only a few days until expiration, then let it run, because theta will erode the price more and more quickly.

[Pieter]

Excellent! Very helpful, I like how to show how one could manage positions under different scenarios.

[KQKQKQKQKQKQ]

Re: Situation #3, a CC seller would be best served having the underlying steadily increase and reaching just below the strike at expiry. There in lies the gamble.

[projectfinance]

Of course, you could do nothing and not manage a CC at all! Hopefully, this video gives you some things to think about in the event that you do! Let me know what you think!

-Chris

[jaysmith]

Good video as usual, but I wish you would do a video on rolling covered calls to try to prolong the position as much as possible or to try to reduce the cost basis as much as possible when the stock has moved against you.

[ricardorestrepocastano]

Chris, thank you for another brilliant class. Where do I find the link for joining tasty works with your code on it? I'd like to check them out.
Kind regards
Ricardo Restrepo

[sarvilsanav]

Instead of buying 100 stock, if someone buy in the money call option (premium is close to zero or only few dollars to pay), is it make any difference ? Adv. is less investment than stock...

[MoneyHungryPicker]

Your shares can get called away at anytime when it’s above your strike so holding and hoping it falls below your strike by expiration doesn’t always work. The contract can be exercised buy the buyer at any point when the stock price goes above the strike price you have. I have had this happen to me

[tonyc]

Hi Chris, great video on managing thhe covered calls. I think your video is better than those from tastytrades. I am wondering what software do you use to generate those PL graphs the top and bottom one. Is there a software that let you plot a P/L graph after you have closed a position and see if you had closed it in the most optimized time instead of waiting until expiration? Manually keeping track and drawing the graph takes a lot of time. Thanks.

[karanchaudhari]

Sir please🙏🙏🙏🙏 give Fibonacci setting for India stock market

[brianquigley]

It's difficult to analyze these scenarios unless we know if the investor is wanting to own/keep the shares. Without this info it's not ez to determine what strategy to employ.
IMO the only real risk is to the downside. One can't lose a dime even if exercised on the upside.
But if investor wants to keep the stock then roll up.
Even in scenario #1 with stock going down the investor could have rolled down to capture more premium. But again it's difficult to know what to do without knowledge of intentions of the investor.

[gillianvallis]

Looking so much better without the glasses!

[Nice-Y]

Hi Chris, could you make a broken wing butterfly video?

[DaveD]

Chris, what do u think about trading 1-2 weeks CC instead of 30-45 DTE, although i get less premium, it gives u the flexibility to close or roll the CC for credit in the event that your CC gets tested. Also, theta decay would be the highest in the final week of the option

[jeremygalloway]

U sound exactly like Marko finance or whatever his name is