Start out by logging in to the optionsXpress platform and hover the cursor over "Trade" in the horizontal navigation bar. A drop down menu will appear, and from there click on "Covered Calls."
|Figure 1: Click on "Covered Calls" in the trade menu after logging in.|
The next step is to enter the ticker symbol for the stock purchase and the number of shares. In this case, we are buying 100 shares of Amazon stock – so we have entered "AMZN" in the "Stock Symbol" field, "Buy" in the "Action" field and "100" in the "Quantity" field.
Next, we add the symbol for the call option, again "AMZN." One call option contract is equivalent to 100 shares of stock, so in the "Quantity" field we enter "1."
Figure 2: Click on the "Option" button to bring up the detailed information on the option for the selected stock.
In the covered call example above, we are simultaneously buying 100 shares of AMZN and selling one call option. Click the "Option" link circled in red to bring up the detailed information on the option for the selected stock.
SEE: Exotic Options: A Getaway From Ordinary Trading
Figure 3: An example showing one August12 230 call.
Now we can see the strike price and the expiration date of the call option. Again, the strike price is the price at which the option contract can be exercised.
In this case we are selling one August12 230 Call. This means we are selling someone the right to buy 100 shares of AMZN at $230 in a timeframe of up until August 2012. This is a monthly option that expires on the third Friday of the month, in this case August.
From here you can also select the order type, a market order or a limit order. A market order is an order to buy or sell an asset immediately at the best available real time price. A limit order is an order to buy or sell an asset at a specified price or better. In the case of a covered call you would be using a limit/debit order.
SEE: Trade The Covered Call – Without The Stock
You also need to specify the order duration - day order or good 'til canceled. A day order is an order that expires automatically at the end of the day's trading session. A good 'til canceled order is an order that stays open until it is filled or canceled.
On the bottom right you can see the NBBO quote – this stands for National Best Bid and Offer. This is a useful reference, stemming from the SEC requirement that brokers guarantee their customers the best available ask price when they are buying securities, and the best available bid price when they are selling securities.
Once you have entered the information for the order, you are ready to click the preview order button at the bottom which will bring you to a page like this:
Figure 4: Previewing an order where you can see the details of your trade.
Here you can see all the details of your trade, including the estimated commission and order total. Once you have reviewed this information you are ready to place the covered call order.
SEE: An Alternative Covered Call Options Trading Strategy
How To Place A Covered Call Strategy With optionsXpress: Conclusion
InvestingHere are the brokers that offer the best tools for investors and traders to write covered calls and covered puts.
TradingLearn how this simple options contract can work for you, even when your stock isn't.
TradingA good place to start with options is writing these contracts against shares you already own.
RetirementCovered calls may require more attention than bonds or mutual funds, but the payoffs can be worth the trouble.
TradingLearn how to buy calls and then sell or exercise them to earn a profit.
TradingThe adage "know thyself"--and thy risk tolerance, thy underlying, and thy markets--applies to options trading if you want it to do it profitably.