Covered calls are an excellent way to generate income from a long stock portfolio, but options trading can be intimidating to those without experience. While you’re unlikely to lose your shirt trading covered calls, those looking to generate a steady income stream could benefit from a covered call advisor to help construct an optimal portfolio strategy.
Let’s take a closer look at covered call advisors, how they can help, and tips for getting started.
What is a Covered Call Advisor?
Covered calls are an options strategy that involves writing (selling) call options against a long stock position. Immediately after selling the call option, you receive the option premium as income. You keep the option premium regardless of what happens, but if the stock price rises above the strike price, you may have to sell and deliver the stock (usually at a profit).
Covered call option diagram showing breakeven and max profit. Source: The Options Bro
While covered calls are one of the least risky option strategies, calling the strategy “easy” is a bit like calling geometry easy just because you can recognize shapes. Successful covered call investors are proficient at everything from stock selection to dealing with unexpected events. As a result, most investors could use the help of an experienced advisor.
Covered call advisors are financial advisors that specialize in covered call strategies. While all financial advisors are familiar with stocks and bonds, few have experience with option strategies capable of generating alternative sources of income. These skills can be invaluable when conventional fixed-income and dividend stocks aren’t performing well.
Why Work with a Covered Call Advisor?
Covered calls are one of the most popular option strategies, but as we mentioned earlier, that doesn’t mean everyone will have success trading them. While writing covered calls against a single stock already in your portfolio is one thing, building and maintaining a portfolio from the ground up to generate income from covered calls is an entirely different story.
Some common challenges that arise include:
- What stocks should you use for covered calls?
- What strike prices and expiration dates are ideal?
- How much should you allocate to a single position?
- What do you do if the stock moves higher?
- What do you do if the stock price moves lower?
- How many contracts should you sell against a stock?
Lattco software makes it easy to find and execute covered call trades. Source: Snider Advisors
Covered call advisors can help answer these questions with a well-defined strategy, purpose-built software, and/or hands-off asset management services. For instance, Snider Advisors offers The Snider Investment Method as a complete strategy, Lattco software to automate trades, and asset management services for those wanting a hands-off approach.
Tips for Choosing a Covered Call Advisor
Covered calls are a relatively niche investment strategy, but they can be incredibly valuable for generating income. When evaluating covered call advisors, the due diligence you need depends on the services you want. For example, reviews are an excellent way to compare info products, but if you’re looking for asset management services, you will need to dig deeper.
Investors purchasing covered call strategies or educational courses should start by looking for reviews on third-party services like TrustPilot. Even better, you can seek out companies with free e-courses or “try before you buy” options. That way, you can determine if the content is right for you before making any financial commitments.
If you’re using asset management services, you should always check a financial advisor’s Form ADV to understand the fee structure, potential risk factors, conflicts of interest, disciplinary information, and whether the individual or firm has filed for bankruptcy. Between 7% and 15% of financial advisors have been cited for misconduct, so it’s worth a check!
Also, working with anyone that is unregulated is very risky. All “authentic” financial advisors will be registered with either the SEC or their state’s regulatory agency. There is no excuse for an honest person providing investment advice not to be registered with the proper authorities.
If you need more comprehensive financial planning services, you may also want to look into an advisor’s experience and expertise in wealth management, estate planning, or other areas. While all advisors require a Series 65 or 66 license, some go further with CFA, CFP, or ChFC credentials that provide extra knowledge in these areas.
How to Get Started
Covered call advisors are an excellent way to generate income from covered calls while benefiting from the experience and expertise of investment professionals. After identifying a potential advisor and conducting some due diligence, the next steps typically involve setting up a brokerage account or a managed account with the advisor.
At Snider Advisors, we provide a range of different options depending on your goals. Our free e-courses require little more than a brokerage account to get started. If you plan on implementing the Snider Investment Method, you may also want to consider setting up an account through Lattco to benefit from our automated trading software.
Of course, our asset management services include more than just covered call trading. We can help with everything from Social Security planning to tax guidance with options for business owners, elderly couples, or family offices. The onboarding process for these arrangements begins with a consultation and involves a more personalized process.
The Bottom Line
Covered calls enable anyone to generate income from a long stock portfolio. While they’re a low-risk and straightforward strategy, building and maintaining a portfolio capable of generating steady income is another story. Fortunately, covered call advisors can help provide the knowledge, software, and portfolio management to assist.
Snider Advisors is a leading covered call advisor providing a wide range of options, from comprehensive education for DIY investors to asset management services for hands-off investors. If you’re interested in learning more, start with our free e-courses to get a solid base understanding or inquire about our asset management services.
