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Showing results for tags 'naked put'.
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Hi, I have traded shares over the last few years with some success. However I keep hearing claims of using a covered call strategy to get a 3% - 6% profit each month. Apparently you buy the share and the covered call at the same time. You get paid for the covered call which gives you an income. I understand that if the stock goes up you will only get the capital gain up to your strike price (You make a profit). I also undertsand if the share stays flat then your covered call will expire and you keep the premium and the shares. (make a profit). You can then write a covered call again. However I don't understand what happensif the share drops in value. I understand that your capital will go down with the share priice, but what happens to your covered call? Can you sell your shares and the covered call at some point below what you paid and still make money because you collected a premium? They say a little knowledge is a dangerous thing, and that is what I have with this subject, a little knowledge. I would also be trading from the UK so I'm not sure of the restrictions and who i would use to try this strategy out with a demo account. I'm sure this strategy has been around for some time with quite a few people trying to sell courses on it. (Investment Mastery, Cash For Life or The Protected Trader etc). Can anyone help me understand this strategy better and what the pitfalls reaaly are. Kind Regards Lee
