Using Options – selling Calls against a Long Stock position

There are a variety of ways to protect a Long Stock position. The approach that you choose depends on the goal for the protection. Here are some examples:

  • A Collar (short Calls, long Puts)
  • Long Puts
  • Long a Put Spread
  • Short Calls

Wait a minute. Short Calls? How does that protect anything?

Let me show you a current trade in $AVGO as an example. I am long stock at $54 (since 1/4/2014) and I am short the February 55 Calls at a $2.21 credit. Here is how the short Calls help to provide a cushion:

By having the credit you are provided some “protection” down to $51.79 on the long stock ($54 – $2.21). With that in mind, that would be a good place to locate a Stop today as price is probing the $53 level today.

2 thoughts on “Using Options – selling Calls against a Long Stock position

  1. Update: my course of action today was to sell the position when it broke the lows of 01/27 (I sold at $53.75) for a loss of $.25 and then to monitor the price action for a new long entry. The Short Calls for February remain.

  2. I have started a new long stock position at $53.05 so the short Calls are now covered again.

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