When to Avoid Doing Covered Calls

Selling Covered calls is a wonderful strategy in general. It allows people to make consistent money from the stock market, but there are some times when it is better to avoid placing a covered call position.nn1. When the Markets Are FallingnnWhen a stock is down trending it is better to avoid doing a covered call because you would have to buy the stock and ride the trend down to do that. Getting a $1 premium is not going to be very helpful if the stock goes down 15 points. nnIt is better to avoid getting into stocks on the long side when they are going down, because you do not know how far they will go down before they turn around. It is cheaper to wait until it starts to bottom out before getting into it. nn2. When A Stock Has Poor FundamentalsnnWhen I get into a stock to do covered calls on I know that I could be in that position for a long time. So it is a wise decision to buy fundamentally strong companies. Selling calls on weak companies might be profitable, but why take the chance. nLooking at the fundamentals helps you avoid getting into a company that will be out of business in the next few years. nn3. When a Stock is Up trendingnnUp trends can last for a long time, why sell calls on it. Sure it you can make money by selling calls on an up trending stock, but why bother. Instead it can be a much better idea to ride the stock as it goes up and only sell calls as it is staying flat.nnIt can feel pretty bad to sell a $20 call on a stock and then watch it shoot up to $100 after all. Sometimes there are better profits to be made. nnFor more on covered calls visit http://www.stocks-simplified.com/covered_calls.html nnFor some stock tips visit http://www.stocks-simplified.com/stock_tips.html