The right way to sell your stock? Write a covered call

(Also see  – the right way to buy shares at your target price, writing a put)

Say you are bullish on a stock – and have a target price at which you would like to sell.

You could of course, place a limit order – good till canceled – which would automatically sell your shares once the target price (your set limit price) is reached.

However, there is another, yet more profitable way to achieve this sale. While you are waiting for your target price to be reached, you would actually make money.

Through something called writing a covered call. The ‘covered’ means you already OWN the underlying stock – and if the buyer of your call option was to exercise their right to buy, you would simply transfer your shares to them.

Say – TSLA is at $300 and you own 100 shares of TSLA.   Say you are bullish and would like to sell when it reaches $400. Let us call this ($400) the strike price.

You would WRITE a CALL that allows someone to BUY at the Strike Price ($400).

Now, when someone buys your CALL, you get paid right there and then (it’s called the option premium). So – you would have made some money right off the bat.

And if the stock reaches $400, you would have also made the profit ($100 per share) –> same as you would have if you had just placed your limit order.

What’s the Downside?

The only downside is that if TSLA were to go  waaaaaay above $400 – say hit $500, you would have lost that extra run up. You were committed to sell at $400 and take whatever profit that provided.

So – in any case- if you have decided on  an ‘exit price’ – the best way to sell your stock is to do it through a covered call.

Bagholders and Covered Calls

This is also a great way to earn some income while waiting for your stock to get back up (bagholder status 🙂

We’ve all been there. We bought near the top – and are now stuck with a 50% drop.

The best way is to write a covered call (strike price anywhere between current price and even above the original buy price). This way, you earn for writing your call. And at the same time, you have the underlying stock to sell in case it does get to the strike price (you will not be out of pocket – pressed to buy or sell anything if the strike price is reached).