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Covered Call Options Trade Review on Ford Motor Co
Discover how selling covered calls can generate weekly income
Lately, I’ve been experimenting with an option trade I call the “steak dinner trade.” I own 1,000 shares of Ford (F) stock because I believe they have a better chance of building and selling electric vehicles (EVs) than Tesla (TSLA) does. So far, my hypothesis hasn’t paid off in share appreciation, but rather in weekly income that can pay for a steak dinner for two.
The majority of people go long on options (to buy) and they pay a premium for the right to buy a stock at a predetermined price, also known as the strike price. Money flows from your account to the trader that offers the option. In the case of the option buyer, the time (theta) decay works against them, but theta decay works the opposite way for the option seller. Theta decay works for the seller.
I’m very risk-conscious, and selling a call option to someone is risky because my upside risk isn’t capped. The way around this risk is to put up any shares of the underlying asset as collateral. This is called selling a covered call. You sell the call option to someone, collect the premium, and put up the underlying asset you own as collateral.
That’s what I’ve been doing with Ford. I sell 10 weekly call option contracts at a…
