Article Risk Management Techniques For Selling Covered Calls

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Shorting covered calls is a very popular option trading strategy that involves shorting a call option and taking a long position in underlying stock. On the upside, there is limited capped profit to the trader with limited and proportionate loss on the downside. Experienced traders apply this strategy with the right timing and careful selection of the expiry and moneyness of call options
The risks in selling covered calls There’s a common misconception that any option that is shorted, the potential for loss is unlimited. The same is thought of short covered calls, but this is not true. In fact, the maximum risk in a short covered call position is limited and can be managed efficiently – with the proper timing of the trade and selecting the covered calls on the right underlying. 
First things first: What’s the risk in selling covered calls? Let’s begin with an example. Assume we are creating a short covered call position on the NYSE-listed IBM stock with the underlying...

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