Want to sell call options on Robinhood? As of now, traders can buy and sell call options as a method to diversify their portfolios. However, in order to accomplish this, they must first develop effective tactics that would ensure consistent results. It means they must evaluate strategies and select one that will assist them in achieving their objectives. So, how do you go about selling a call option on Robinhood?
One of the simplest ways to lock in a profit in the stock market is to sell a call option. However, with so many trading platforms to select from, you'll want to pick one that not only safeguards your money but also facilitates transactions like selling a call option. That is exactly what Robinhood provides.
To sell a call option on Robinhood, all you need to do is to login to the platform and click on contracts. After that, you'll need to tap on trade and then click on sale. Next, enter the amount of contracts you want to sell, select an acceptable contract, enter the limit price you want, and submit.
If you're new to the platform, the process may appear more difficult than it is. In fact, it's less difficult than selling stocks. However, there are a few features you'll need to become used to in order to grasp how it works. You'll also need to be familiar with a variety of terms.
That said, in this article, I will show you how to sell a call option on Robinhood without hassle.
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What is a Call Option?
The basic concept behind selling a call option is that you sell someone else the right to buy a stock from you at a set price (the strike price) by a set date (the expiration). The "premium," which is paid up front for this agreement, is paid to you in cash.
If the stock price at the expiration date is less than the strike price, the buyer will have no reason to assign (exercise) the option, and you will keep the premium. If the stock price is higher than the strike price, the buyer will exercise the option, and you will be required to sell the stock at the strike price.
If you feel the price of the underlying asset will rise, selling a call option is a smart strategy.
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Why Sell A Call Option on Robinhood?
One of the reasons why someone could contemplate selling a call option is if they believe the option will lose value after it expires. If they lose their value, the earnings they generate could be significantly reduced. It may result in significant losses in some situations. As a result, there are two ways to sell a call option:
Covered Call Option
If the seller owns the underlying stock, the option is considered to be covered. As a result, when they sell such shares, they gain additional income, which always balances out the drop in stock prices. In this case, the seller may offer the buyer a discount on the shares they purchased. In this situation, the seller's profit will be determined by the stock's price increase.
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Naked Call Option
It occurs when someone sells a call option despite not owning the underlying stock. It's a risky game because the stock price might go up or down at any time. Because the call option seller does not own the underlying stock, the potential losses do not protect this one. The naked seller's only choice after the call option buyer is to acquire the stock at the current market price.
The shares are then made available to any of the option holders. However, if the stock price exceeds the strike price, the gap between the strike and the current price represents the seller's potential loss. It is for this reason that call option sellers will always charge a fee. This fee will compensate for losses that may occur.
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What to Consider Before Selling A Call Option
When the underlying stock's price is trading below the strike price, selling a call option might be an excellent strategy to make money. However, before deciding whether to sell a call option or not, be sure you've considered all of the following factors:
Expiration Date:
As the expiration date approaches, the premium received by the seller of a call option grows. The main point is that as the expiration date gets closer, the underlying stock's chances of moving into an in-the-money position improve. The call will be assigned if this occurs. As a result, the premium rises to compensate for the increased risk.
If you hold the underlying stock, the expiration date is even more significant. You'll be raising the firm frame in which you're capping any gains that may materialize following a rise if you sell a covered call option with a longer period to expiration.
Premium:
This is the money you get up front when you sell a call option. The premium is determined by the difference between the spot and strike prices. As the strike price moves further away from the spot price, it will decline. A call with a lesser premium, on the other hand, is less likely to be assigned.
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Strike Price:
If the call is assigned, the Strike Price is the price at which you must sell the underlying stock. Higher-strike-priced calls are less likely to be assigned, resulting in a reduced premium. Those with a lower strike price, on the other hand, are more likely to move into an in-the-money position and so get assigned.
If all other conditions remain constant, a call option with a higher strike price is preferable since it allows you more room to profit from a rise in the underlying stock's price.
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The Number of Contracts:
There are 100 shares in each option contract. If you sell a larger number of contracts, you'll get a higher total premium. However, you must hold more shares of the underlying stock in order to sell additional contracts.
How to Sell A Call Option on Robinhood?
Selling a call option on Robinhood is an easy step-by-step process that can help a trader minimize the danger of losing money while the value of their portfolio is declining. Similarly, if they wish to monetize the shares after a price increase, they may consider selling the call option.
Step by Step Guide to Sell a Call Option on Robinhood
The steps for selling a call option on Robinhood are as follows:
- Login to the Robinhood app.
- Find the stock for you want to sell a call option. To do so, go to your home screen's top right corner and tap the magnifying glass.
- Once you've chosen a stock, a new page will appear with further information about it, including the current spot price.
- Tap "Trade" in the lower right corner of the stock's detail page.
- Finally, Select "Call Option" from the "Trade Options" menu.
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How Long Does it Takes to Sell A Call Option on Robinhood?
When your Robinhood buying power dwindles, it becomes more difficult to exercise your options. In this situation, the most logical thing to do is sell a contract on Robinhood an hour before it expires.
Depending on the orders, the time it takes to sell the call option may vary. The buy limit order might be filled at a lower or higher price than the designated limit price. In this case, selling your call option may take a little longer.
In addition, the speed with which Robinhood executes such an order is a key component in deciding how long it takes to sell the order. Also, the amount of time you spend attempting to sell the order is important.
Due to the fact that there are usually delays on certain days, the orders may take longer to complete. Traders who try to sell a call option on Monday morning are likely to encounter this problem.
The call option lets you purchase particular shares at a specified price. You can call the option and lock in a lesser price if the price increases before the expiration date.
It has the same outcome as before. However, if you decide to sell a call option before the expiration date, there are a few actions you'll need to take. The following are some examples of such steps:
- Understanding concepts such as strike prices, expiration dates, premium prices, put options, and in and out of money while selling call options.
- The requirement to analyze investment plans in order to select solutions that match your financial requirements.
- Examining the underlying asset to determine whether or not to exercise or sell before the expiration date.
- Know how much the sale is worth and how much profit you're likely to make.
- The amount of profit you're expecting to make may influence whether you let the investment expire or exercise your option.
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How Many Types of Call Options Can You Sell On Robinhood?
Either a covered call or a naked call can be sold. You must hold enough units of the underlying stock to cover the short position in order to sell a covered call. For instance, to sell 100 shares of a stock through a call option contract, you must own at least 100 shares of that stock in your portfolio.
You don't need the underlying stock in your portfolio to sell a naked call. If the call is assigned, however, the funds in your account must be sufficient to cover the short position.
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Frequently Asked Questions on How to Sell A Call Option on Robinhood
What's the Best Time to Sell A Call Option on Robinhood?
If you believe the underlying stock's price will remain relatively stable or climb somewhat in the near future, selling a call option can be profitable. You'll bet that the price of the underlying stock will not climb over the strike price of the option.
One of the advantages of selling a call option is that it allows you to earn money on securities that are already in your portfolio. For each stock promised in the contract, you'll be paid a premium.
However, there is a catch: because the call will be assigned, you will lose the opportunity to profit if the stock price rises above the strike price.
Of course, you must keep in mind that if the call is issued, you will be required to sell the underlying stock to the buyer.
When you're pessimistic about a stock's near-term prospects, you can also sell a call option. If you sell a covered call and the underlying declines in value, the premium received will partially compensate you for your losses. Selling a call does not guarantee that you will not lose money.
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Can You Sell A Call Option Before Expiration Date?
Yes! you can sell your call option before it expires. The reason for this is that it is a derivative instrument whose price is based on the price of an underlying stock. As a result, the buyer is free to sell the options contract to anyone else before the arrangement expires. At the present market price, they might be able to sell a call option.
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Can You Sell A Call Option Before it Hits the Strike Price?
Yes! It is possible to sell a call option before the strike price is reached. In fact, you can sell a call option right after you buy it. The only difficulty is that if you sell it before it passes the strike price, you'll have to forfeit the premiums you've already paid.
Deep-pocketed traders are known for selling options before they reach the strike price. The fact that their losses are limited to the total premium amount is one of the reasons behind this. Due to volatility decays, the premium value may suffer near the expiration date.
However, there is a relationship between the asset's current price and the strike price that you should examine. The relationship aids in determining the contract's value, particularly as the contract nears its end. When the stock price approaches the strike price, the contract is usually in the money.
When the strike price is identical to the stock price, the option is called a money option. As a result, when the strike price is reached, the intrinsic value equals the difference between the contract and stock price.
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Final Thoughts on How to Sell A Call Option on Robinhood
A call option is a trader's right to purchase an underlying asset at a certain price. However, this is only allowed within a specific time limit known as the predetermined expiry date. As a result, a call option buyer is a trader who has the right to buy stocks at the strike price as long as the contract's expiration date hasn't passed.
It is important to remember, however, that they are under no obligation to do so. They can sell the call option on Robinhood for a profit or when the shares become worthless if they bought the option.