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Writing covered call is a perfect method of making money from a stock that you own. It used correctly it can be many more time as powerful as simply buying and holding.
Ok, but say you have already sold a covered call and that call is coming due, what can you do? Well in this case there are 3 possiblities. If the call is in the money you can let it go and you will be forced to sell the stock, if it is out of the money you can let it expire, or if it is out of the money you can roll the option.
When you roll a covered call option you are able to increase your returns. It works like this, you buy back the call option you sold for this month, and then you sell another call option on the same stock at a later date.
This way you can make a greater income in the long term. You may have to buy back the option you sold which tends to make it look like a slightly worse deal. But if the call is only trading at say $.05 and the next months call is trading at $1 that would more than make up for it.
Also if the stock goes down in the near future the premium will also be affected. The option premium can go down even further simply because of time decay. In many cases it is not worth keeping $.05 if it can cost you $.20 or $.30 on the next month’s premium.
Selling covered calls can be very powerful, especially when combined with strong high dividend paying stocks. Rolling options can work well for this strategy.
