Selling call options can be a great way to generate income, especially for Robinhood users. As a Robinhood user myself, I have learned how to successfully sell call options to earn consistent profits. In this article, I will share my experience and expertise to teach you proven strategies to sell call options like a pro on Robinhood.
Table of Contents
What is a Call Option?
Before diving into strategies, let’s review what a call option is. A call option gives the buyer the right, but not the obligation, to purchase 100 shares of the underlying stock at a predetermined “strike” price on or before an expiration date. As the call option seller, you take on the obligation to sell 100 shares at the strike price if the call option buyer chooses to exercise their right to buy.
Why Sell Call Options?
Here are the main benefits of selling call options:
- Receive instant income: You get paid an upfront premium just for selling the call options. This provides great cash flow.
- Profit when stock stays flat or drops: As long as the stock stays below the strike price, you keep the entire premium. No matter how much the stock drops, the maximum loss is limited.
- Compounding returns: You can sell call options repeatedly on the same stock over time to compound your returns.
Risks to Understand
While call selling has many advantages, there are risks to be aware of:
- Unlimited loss potential: If the stock rises above the strike price, your losses could be significant. The maximum profit is limited to the premium received.
- Getting assigned: If the call option buyer exercises their right, you may be forced to sell 100 shares per contract at the strike price. This requires having the shares or capital to buy them.
Best Practices for Generating Income
Follow these proven tips when selling call options for income on Robinhood:
1. Sell Covered Calls on Stocks You Own
Covered calls limit risk because you already own the 100 shares per contract. It allows you to earn premiums on stocks you have.
2. Choose Strike Prices Above Current Stock Price
This raises your odds of profiting. As long as the stock stays below the strike price by expiration, you win.
3. Sell Calls With 30-60 Days Until Expiration
Longer expirations mean larger premiums received. But don’t go too long or time value decays slower.
4. Stick to High Volume Options
Popular options have tighter spreads between bid/ask prices, allowing better entries and exits.
5. Close Positions at 50% Profit
Consider buying back your calls at 50% of the premium received to lock in profits early.
6. Limit Calls to 5-10% of Your Portfolio
Don’t overload your portfolio selling calls. Allocate only a small portion to manage risk.
Step-by-Step Walkthrough
Follow this walkthrough to start selling covered calls like a pro on Robinhood:
- Buy 100 shares of stock you want to sell calls against
- Navigate to the options chain for that stock
- Select the call option expiration date
- Choose a strike price above the current stock price
- Click “Trade” and change the order type to “Sell to Open”
- Adjust order details and preview your order
- Swipe up to submit order
- Monitor order status and secure profits early
Selling covered calls can generate reliable income once you learn the ropes. Apply these best practices and walkthrough when selling calls on Robinhood to produce consistent profits like an expert trader. Let me know if you have any other questions!
Conclusion
Selling call options is a time-tested strategy used by professional options traders to generate regular income. While risks exist, they can be managed through smart position sizing, strike price selection, and early profit taking. Follow the tips outlined in this article and use the step-by-step walkthrough when selling covered calls on Robinhood. With practice, you can successfully earn profits no matter which way the stock market moves.
