Weekly Covered Call Hybrid Trade

An interesting option income trading strategy – that can be used with both monthly and weekly options – is a hybrid between a straight call or put option play – and a debit spread trade.

Perhaps the two easiest strategies to grasp when someone first starts to trade options is straight call and put option buying – and the concept of selling premium. In fact, the covered call strategy is one of the first trading strategies that investors learn when first getting started in trading options – and the strategy we will be looking at in this post is very close to that type of trade.

The idea behind this strategy is to first have a basic opinion about the stock you will be trading options with – you need to have an opinion regarding if you think it will be heading up or down. If you have ‘stock move targets’ – or in other words you not only have an opinion on the direction – but also to where on the chart you think it will move to.

Then you purchase a straight call option (if you think the underlying will be moving up) or a straight call option (if you think the underlying will be moving down).

After you have purchased the call or put option you let the underlying ‘do it’s thing’.

If you are correct and the underlying does move in the direction you thought it would – once it reaches the area on the chart you pinpointed as the ‘stopping point’ (this could simply be a standard deviation – or areas of resistance or support) – you then sell a call or put option against the option you previously purchased.

So, for example, if you purchased a call option – and the underlying moved upwards like you anticipated – you would sell a call option against the one you already purchased once the underlying hit your target area.

This creates a trade very similar to a covered call – only with this particular strategy we are doing it using only options – and also in stages – which can actually wind up creating a really ideal option trading position called the ‘box’ – which is an option trading strategy position where profits are locked in and it is not possible to realize a loss.

To learn more about these and other similar unique option trading strategies – be sure to join our option income trading newsletter by clicking on the link below – it’s free!

weekly options windfall

This entry was posted in Weekly Options, Weekly Options Trading and tagged , , , , , , , , . Bookmark the permalink.