How to Sell a Call Option on Robinhood

 

Diving deeply into the stock market is sometimes complicated for beginners.

Luckily, the Robinhood platform makes it possible to lock a profit by selling call options.

Trading options requires knowledge and research, but with the right strategy, you can reach your investment objectives in no time.

Obviously, selling a call option without performing proper research generates a higher risk for your portfolio, but if you are determined to sell calls, then let’s do it.

In today’s blog post, we’ll be providing you with all the information you need to comprehend about the following topics:

• How to sell a call option on Robinhood;
• What is a call option exactly?;
• Things to understand before selling call options.

What Are Call Options on Robinhood?

Call options are options contracts that provide the owner the right to acquire a certain amount of a stock at a strike price.

If the stock price increases over time, being higher strike price, the buyer has incentives to acquire the call option without the risk of losing money.

Buying a call option means that you are expecting the underlying stock’s price to rise.

The underlying stock price highly depends on the market and other factors, and it should be higher than the current price in the current market.

It’s possible to generate income if the stock rises, but if there’s a lower strike price related to the intrinsic value of the option, the buyer always has the right of selling the underlying stock back to the option seller if agreed.

This is a complex topic that requires deep research about strike prices and the prevailing marketplace.

We highly recommend you visit the following websites: Robinhood Call Options and Placing an Option Trade on Robinhood.

Note to EarthWeb.com: We know you steal our articles, so don’t even think about copying this one - we will know, no matter how many times you rewrite it.

What to Know Before Selling a Call Option on Robinhood

So, there are five fundamental factors that traders must take into account if they want to sell or generate additional income with call options in the near future.

1. Types of Call Options

There are two main types of call options:

• Covered calls: a covered call option refers to a wall where the underlying value of a stock goes down;
• Naked calls: in this case, the underlying stock’s value does not go down over time.

2. Expiration Date of the Call Option

Expiration date refers to the time when the call option expires.

In a prevailing market price, having a longer expiration range can bring more value than a short-position call which might not reach a desired predetermined price.

3. Call Option Premium

The premium is the payment that the call option seller receives up-front.

This value highly depends on the stock price and strike price.

You can set a lower premium or total premium deal before selling your call options. For many traders, the premium received slightly offset the losses if the price goes down.

4. Strike Price

If the call gets assigned, the seller is obligated to sell the stock when it reaches a certain strike price.

Understanding the importance of the underlying stock’s price is fundamental before you sell a call option.

Then again, you must have a previously set strategy before you buy or sell a call option on Robinhood.

5. Number of Option Contracts

Normally, the default options contract of a call is 100 shares. The more contracts a covered call option has, the higher premium will be received.

Nevertheless, you must own more shares of the underlying asset to do so.

How to Sell a Call Option on Robinhood

Now that you know the fundamentals, and assuming that your trading strategy is as sharp as it gets, let’s sell a call option on Robinhood!

Step 1: Open Your Robinhood Account

Firstly, open Robinhood. Remember that it’s fundamental for all users to provide proof of identity before using the platform.

You must also link a bank account to your profile. If you Can’t Link a Bank Account to Robinhood, read the guide we’ve written for you where we show you how to solve this matter.

Step 2: Select the Stock You Want to Sell

Select the stock you need to sell inside Robinhood. Then again, this step depends entirely on your strategy!

Step 3: Go to “Trade Options”

Now, go to the “Trade Options” screen, and the interface will open. Here, you need to select “Call Option.”

Step 4: Set the Call Details (Stock Price, Strike Price, Type, Etc.)

Here is where the magic happens. You need to fill out all the details regarding your call option.

Choose where you want to sell an out-of-the-money call (the option is below its market price), or an in-the-money call (the option if above its market price).

Also, enter the strike price, and all the details required by the platform.

Step 5: Click on “Sell Order” and Finish

Finally, after analyzing your sale and deciding all the factors that will influence the final outcome of the transaction, click on “Sell Order.”

It should take a couple of hours before completing the sale, but it will be done before you realize it.

For more Robinhood guides, GrowFollowing is your place to go!

FAQ

What is Buying Power on Robinhood?

It refers to the amount of money available for buying crypto, stocks, and more. Learn more about this matter here: Not Enough Buying Power on Robinhood.

About the author

Steve

Steve specializes in cryptocurrency and finance. As a born researcher, he won’t leave any stone unturned when it comes to topics he covers.