Top 5 Mistakes Beginners Make When Writing Covered Calls
Top 5 Mistakes Beginners Make When Writing Covered Calls
Covered calls are a powerful income strategy — but for beginners, it's easy to fall into traps that hurt performance or lead to surprise losses. If you're just getting started, here are the top mistakes to watch out for:
1. Choosing Stocks with Earnings Before Expiry
This is the most common mistake. Stocks often experience volatility during earnings — and your trade can swing wildly or get assigned unexpectedly. Use tools like Optrader.ca to filter out trades with earnings due before expiry.
2. Writing Calls Too Far In-The-Money (ITM)
Many new investors write deep ITM calls thinking they're safer. While it reduces risk, it also caps upside severely and leads to missed opportunities. Look for a balance between premium and realistic strike selection.
3. Ignoring Liquidity (Open Interest & Volume)
If no one is trading the option, your execution might be poor — or you may struggle to close or roll. Always check open interest and volume before entering a position. Optrader makes this easy to screen.
4. Selling Calls on Highly Volatile Stocks
Yes, you get a big premium — but these stocks are often risky, unpredictable, and more likely to gap up (or crash). Covered calls thrive on stability. Use indicators like beta, ADX, and news sentiment to gauge risk.
5. Letting Expired Calls Auto-Assign Without a Plan
Many beginners are surprised when their stock is sold automatically due to assignment. Have a plan for expiry: roll, close, or let assign — but know what you’re doing in advance.
Bonus Tip: Start Small and Track Results
Don’t jump in with your entire portfolio. Start with one or two trades, track ROO %, and note what works. Use Optrader’s screener to backtest and compare trades using historical data.
