With no big economic news this week, we’re focusing on stock plays in Catalyst Cash-Outs.

And one of the strategies we’re using is the “Covered Call” strategy.

We’ve had members in Catalyst Cash-Outs say “I don’t have enough money to make that trade.” But this strategy allows traders to own multiple stocks at a cheaper price – thus alleviating the big costs of trading options.

Here’s how they work…

Covered calls 101

When trading a covered call, you buy a stock and then sell an option against it. This allows you to reduce your cost. Your upside is also capped to the strike price minus your cost.

This works in your favor by reducing your cost – which takes some of the risk off the table if the stock goes down. You’re also getting in on the stock at a much lower price.

How you profit from covered calls

The primary goal of covered calls is to generate premium income.

There are three ways traders can profit from covered calls.

One way is if the stock stays the same price. The other is if the stock goes up, and the last way is if the stock goes down.

How to execute a covered call

When you sell a covered call, you want to buy 100 shares of stock and then sell a call against it. This lowers your total breakeven price because you’re bringing in money from the premium that you are taking in to sell the call.

Also, if you’re unsure of how to trade using covered calls, I recommend paper trading this strategy over and over again until you start to see how the stock moves. That way you’ll know the full scope of how this trade becomes profitable.

Once you understand how covered calls work, you can replicate them over and over again. Say you want to own several stocks but can’t afford the options, covered calls are a way to have your cake and eat it too.

How you can lose on a covered call

The only way you can lose money on a covered call if the stock plummets past your initial entry price. But because covered calls are designed to give you a massive cushion, you can reduce your cost basis.

This makes them a consistently safe option since the only way to lose is in a rare black swan event.

YOUR ACTION PLAN

Covered calls are a great strategy for traders if they want to own several stocks at a cheaper price. Once you learn how to trade them, it’s a strategy you can use for the rest of your life.

We recently issued a covered call trade in Catalyst Cashouts.

Click here to unlock our latest trade today.

FUN FACT FRIDAY

Investors cautious ahead of election: According to a survey by UBS released on Thursday, 77% of wealthy investors are considering new allocations to their portfolio. Elections often bring volatility in the markets as traders adjust to potential perception of new policies.