Since selling a call option obligates you to sell your shares at the strike price if the option is exercised, any substantial rise in the stock price beyond this will cap your upside potential.
Selling calls has the advantage of receiving a cash premium upfront and not having to put money down right away. Then you wait till the stock is about to expire. You will profit if the stock drops, stays flat, or even climbs a little. However - unlike the call buyer, you would not be able to quadruple your money.
The Bottom Line
There are a number of considerations to make, such as those above, when deciding if stock gains have run their course or are likely to continue. One common-sense strategy is to sell as a stock rises to lock in gains over time and to sell into losses to avoid them from spiraling out of control.
A long call investor hopes the price of the underlying stock rises above the exercise price because only at that point does it make sense to exercise a call.
When the stock trades at the strike price, the call option is “at the money.” If the stock trades below the strike price, the call is “out of the money” and the option expires worthless.
Generally, you want to see up weeks in higher volume and down weeks in lower trade. Also look for churn, or heavy volume with little change in stock price. This type of action can signal a change in direction for stocks, either up or down.
So just to quickly summarise:
If you're looking for the best time to either buy or sell a stock during the trading day it is; During the last 10-15 minutes before market close. Or about an hour after the market opens.
The 3 5 7 rule is a risk management strategy in trading that emphasizes limiting risk on each individual trade to 3% of the trading capital, keeping overall exposure to 5% across all trades, and ensuring that winning trades yield at least 7% more profit than losing trades.
In the short term, stocks go up and down because of the law of supply and demand. Billions of shares of stock are bought and sold each day, and it's this buying and selling that sets stock prices.
You will sell a call option that you own when you believe the price of the underlying stock is going to go down, or fear that its value is going to decrease over time due to time decay. On the other hand, you will short sell a call option if you expect the stock price to stay constant or decrease in value.
One popular strategy involving call selling is the covered call, where you sell call options against stocks you own. It's a way to potentially earn income from stocks you own, but if the stock price rises above your strike price, your stock might get “called away.”
Sellers of covered call options are obligated to deliver shares to the purchaser if they decide to exercise the option. The maximum loss on a covered call strategy is limited to the price paid for the asset, minus the option premium received.
If the stock price goes up, and trades above the strike price before the expiration date, you can sell the call option and make a profit. Even if the stock doesn't rise above $2,950, the call options can still increase in value substantially if there's a swift bullish move with plenty of time left until expiration.
Non-company news
Or, a competitor might report good or bad news, overwhelming a company's own earnings report. Or, an interest rate change, geopolitical events or simply a bad (or good) market day might cause a stock to move sharply in the opposite direction to its earnings report.
A call option buyer makes money if the price of the security remains above the strike price of the option. This gives the call option buyer the right to buy shares at a price lower than the market price.
The "11 am rule" refers to a guideline often followed by day traders, suggesting that they should avoid making significant trades during the first hour of trading, particularly until after 11 am Eastern Time.
The 70:20:10 rule helps safeguard SIPs by allocating 70% to low-risk, 20% to medium-risk, and 10% to high-risk investments, ensuring stability, balanced growth, and high returns while managing market fluctuations.
Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and there's often a lot of trading between 9:30 a.m. and 10 a.m. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.
Key Takeaways. Selling a losing position helps preserve your fund and prevent further losses, especially in volatile or declining markets. Holding onto a losing position comes with an opportunity cost that ties up money that could be used for more profitable investments.
In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.
So, while the CAPE ratio is the world's most reliable stock market forecaster, it pays to think long-term, maintain a consistent allocation, and ignore the useless rambling of forecasters and our guts.