Interested in Monthly Dividends

[crimsonghost747]

(11-22-2016, 05:00 PM)NilesMike Wrote:

(11-22-2016, 10:57 AM)crimsonghost747 Wrote:

(11-22-2016, 07:23 AM)NilesMike Wrote: Current example AAPL: Covered call. Stock $ 111.73, sell 30 DEC 16 $114 call for $1.60. (1.4% return if AAPL expires below $114). If AAPL expires at/above $114 return is 3.5% return for 38 days. 

There is something that I don't understand about this. Because to me it looks like you will win if apple stays under $114 and you will also win if apple goes above $114. And 100% certain profit with zero risk is something that sounds too good to be true.

You are risk of AAPL falling below your purchase price, that is all and the loss is offset by the $1.60 you collected when you sold the call. Your breakeven price in this case would be $110.13. Below that you are losing money on this trade. But if you are holding AAPL long term, all it means is that you sell another call next cycle.

Thanks for the explanation! Makes a lot more sense now.