How To Buy A Stock and Sell A Covered Call Together
A covered call is a stock/option combination created when a Call(s) is sold equivalent to the amount of stock purchased. The stock owned covers the option(s) sold. A covered call can be initiated on an existing position or with a buy order on a stock. Here are the steps to buy a stock and covered call at the same time.
1. Click the Opt (option) button on the bottom of the chart pane to open the Option Strategies menu
2. Select Stock + Covered Call
This places an order ticket for the stock and options positions on the chart
3. Select Expiration Date for the Short Call option
Change the expiration date either to closer or further dates using the arrows
Alternately, select a specific expiration date from the drop down menu
4. View available strike prices with the limit price line
Click and drag the Limit line between the available strike prices for the selected expiration date. These are represented by the hash marks at the left of the P&L Zones. Simply stop at the desired strike for the contract.
5. Select the order type desired for the contract
Either leave the order set on Limit, or select a different order type from the drop down menu.
6. Set a Limit Price (optional)
The Limit slider shows the spread between the natural (in this case, the bid) and the far (in this case, the ask). To set a price within the spread at which to place your order, click at any point on the slider. The limit value is seen in the price field next to the "Lmt" order type.
7. Use a Step to Limit order (optional)
Another way to take advantage of the spread is the Step to Limit order. Choose the Step to Limit order from the drop down menu.
Set the beginning of the slider at the limit price desired for the initial order. This will be the limit price at which the order will be entered.
Over the predetermined time period the limit price will be automatically modified down from the initial entry price toward the Natural (or selected) price. The step limit order will attempt to secure a preferable fill price in this process. Modification stops if no preferable fill is received and the limit price reaches the Natural.
8. Submit the order
Click Buy to Open Covered Call
Click Place Order to confirm and submit
9. View The Order
The shares of stock will be purchased simultaneous to the short call. Both will now appear on the chart. The P&L zones show the option generates income (the premium). But at least through the expiration date, the upside gains are limited to the strike price minus the premium plus any gain in the equity price. The position is subject to substantial loss (e.g. if the stock goes to zero). However the loss is offset somewhat by the premium received for the short call. Should the call expire without being exercised, the stock position and the option premium are both retained.
The trading tools work on either a LIVE brokerage account or a PAPER (simulated) trading account. Live market trading requires an account with TC2000 Brokerage (www.TC2000Brokerage.com).