Why Sell a Call Option?
Introduction Let’s listen in on a continuing conversation between two friends about options. In this installment, one friend is trying to explain to the other why somebody would sell a call option. The Conversation JH: I’m mostly clear now on the motivations of a call option buyer. Can you explain about option sellers? Why would anybody want to sell a call option? PE: The main reason is for income. When you own stock, but the market is drifting around aimlessly, you can sell call options against the stock that you own. The premium that you receive, from the buyer of the option, can really help to boost your return. JH: I think I need an example. PE: Of course. Let’s use our ongoing example stock, currently trading at $130. Our investor owns 100 shares of this stock, and she bought it a few years ago for $85 per share. The market is flat. The current premium for the $130 call option, which expires in 24 days is $3.03. If the investor was willing to sell her shares for $130, she could se
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