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Practical Usage – Bull Market – Covered Call

Lesson 7 of 11

Duration 4:00
Level Intermediate

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From a Watchlist on the Monitor tab, click the underlying symbol you wish to create your covered call trade for. So long as your tabs are part of the same Windows Group, the underlying will appear in the Order Entry panel.

To the right of the Order Entry panel select Strategy Builder from the dropdown menu.

You will see the Option Chain window populate the screen. To the lower left, ensure that the Strategy Builder button is set to On. If you see Off, just click the button to activate.

To create a covered call, first the call option must be identified before the stock leg is added.

Strategy Builder displays option chains at the top of the page with call options to the left and put options to the right of the central strike column. You will see the price and daily change of the underlying to the upper right of the window. Above the Call area you will see tabs for different expirations. Click a tab or to locate additional expiration dates, click on the More tab.

Above the Put area you will see a dropdown menu for Strike prices. Access this menu to change or refine the number of strike prices displayed on the page.

Hovering the cursor above any bid price displays a red background. This indicates that by clicking on the field would create an order to sell that option. Hovering above any ask price displays a blue background indicating that clicking on that field would create an order to buy that option.

When a single strike is clicked upon, the selected leg then populates the Strategy builder panel beneath the option chains window, where it can be manipulated before the order is submitted.

Locate the desired option strike you want to transact.

Click on the relevant price field – and specifically the bid price of the call option – to move the leg down to the Strategy Builder.

To include the underlying stock, expand the plus symbol in the Order Entry panel beneath. Locate Stock Leg and click on the field. The underlying is added to the Strategy Builder display beneath the short call option leg. Close the Advanced display in the Order Entry panel below by clicking the red x button.

Now the two pieces of the covered call are displayed and below the bid/ask column you will see the price quote for the combination. This is the price of the stock leg minus the premium received for the call option.

Use the Order Entry panel at the bottom of the page to create the order. Define the quantity of options to trade. Generally, one option contract covers 100 shares of stock. By selecting a number of options, the software will compute the correct number of underlying shares to transact. Choose the right order type from the dropdown menu. If using a Limit price, choose the value by clicking in the input field or simply typing in the value. Select from the Time-in-Force dropdown whether this is a Day or GTC order. Your order is ready to review. Click the Submit button to generate an Order Confirmation. When you have reviewed the details, click Transmit.

der is sent for execution at the exchange and will appear in the Activity panel to the lower left of Mosaic. To pause or interact with an active order click on it in the Activity panel and make the relevant choice.

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5 thoughts on “Practical Usage – Bull Market – Covered Call”

  • Anonymous

    ok

  • Nick

    hey if i have 100 shares already and i sell a call separately, will that be considered a cover call ? will my shares be sold automatically at the strike if the option is ITM at date of exportation

    • Interactive Brokers

      Hello, thank you for asking. Yes, if you have a long stock position and sell a call option against it, that creates a covered call position. If the short call option is assigned, the long stock position will automatically be used to fulfill the stock delivery obligation. The stock position will be closed at the strike price of the call option. Please view this FAQ for more information: https://www.interactivebrokers.com/faq?id=37137940

      We hope this helps!

  • Stijn C

    Seriously guys, how do I put a stop loss on this? I’ve tried putting it on the stock leg, but it doesn’t allow me to do it (because of trading permissions). I am really getting tired that IBKR always does its best to go AGAINST user friendliness. For instance in this video: you want a covered call? IBKR will NOT put it in the strategy builder. Then, you’ll have to search to add the stock leg all around (in some interfaces there’s an attach underlying button, sometimes not, they change it everywhere to confuse you), here it is hidden on the advanced tab, HOW are you supposed to know that? Man, WHY O WHY do you make it so difficult évery time!!!???

    • Interactive Brokers

      Hi Stijn, thank you for reaching out. We are sorry to hear that you had an unsatisfactory experience. You must request trading permissions to trade specific products. IBKR grants permissions based on your financial profile (e.g. age, liquid net worth, investment objectives, product knowledge and prior trading experience) and sometimes where you are located. Please note that we cannot disclose the requirements needed for specific trading permissions. You can easily view and manage your trading permissions any time in Client Portal:
      https://spr.ly/IBKR_TradingPermissions
      For more information about Options levels 1-4, visit
      ibkr.info/node/4860
      If you have a specific suggestion(s) on how we can improve, we would like to hear it! Please review this FAQ on where you can leave your feedback: https://www.ibkr.com/faq?id=32653353
      You can also post in the Feature Poll in Client Portal where other IBKR users can comment and vote: https://portal.interactivebrokers.com/portal/#/suggestions
      We hope this helps!

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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Options Trading

Options involve risk and are not suitable for all investors. For information on the uses and risks of options, you can obtain a copy of the Options Clearing Corporation risk disclosure document titled Characteristics and Risks of Standardized Options by going to the following link ibkr.com/occ. Multiple leg strategies, including spreads, will incur multiple transaction costs.

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