The term covered call refers to an options strategy in which an investor holds a long position in an asset and sells or writes call options on the same asset so as to get good income from that asset. In other words, covered call is a type of option selling where the seller possesses a particular amount of the underlying security that is equal to the number of shares corresponding to the options sold.

If managed smartly, covered calls can be a good source of monthly earnings from the stock market. Here we shall be discussing about eth various steps involved in dealing with covered calls. Just follow the below given steps and you can reach big heights of earnings.

The first step in the process of covered calls is to select the right stock. Try to possess a stock that suits your needs and resources. You must pick a stock that has good fundamentals and is moving either upwards or sideways. This is because buying a downward moving stock for covered calls would be a very expensive affair.

Secondly, make sure whether the stock you are going to buy is optionable. The reason being some stocks have a very small premium and are not a good option for a covered call trade. You should opt for a stock that give you premium of at least 3-5%. Such stocks are considered as a best fit for selling options.

Your next step should be to buy the chosen stock for trade.

After that, keep on looking at the various options present and then select which one would you like to sell. Your decision should be based on how long you want to hold the stock. That is, if you just wish to hold it for the particular trade, sell it within the money option. But if you want to stay for a longer period for rich profits, sell it out of the money options.

When you consider yourself in a position of exiting, just go for it. Make up your mind and decide what you will be doing in a worst case of trade. Then analyze whether it is the right time to exit. If so, it is advised not to wait any longer.

Always keep in mind what you will do if the stock turns against you as in such a situation, holding the stock for long term will only incur huge loss. Plan everything in advance in order to have minimum risk option.

A successful investor is expected to concentrate upon maximizing capital appreciation by being patient. To earn the best possible returns on your investments, you must stick to your basic strategies.

Learn to make sound monthly returns and reinvest them every month. Following this simple strategy will benefit you in satisfying both long-term and short-term goals.

By sticking to your goals, you can be rescued from the ever-present trap that is there for those investors who sacrifice their long-term for the short-term profits. Remember, greed will result in grief.