Share trading tips for beginners

 In this article we have briefly explained about share trading tips for beginners. The safest bet, Which share should we select for trading and the serious mistake happens during trading are explained. Gives ideas about share trading tips for beginners for earning money from stock market.

Do you have to give up your stock if the related calls go in the money? No, absolutely not. If the underlying security reaches the striking price or passes it, you may buy back your covered call and then if you wish to reduce the loss on the option, may sell another one that is out-of-the-money. The premium from the second call will offset some or all of the loss from buying back the first, while you continue to profit from the surge of the underlying stock. You may continue to buy back and write new covered calls as long as it appears to be to your advantage.

The Safest Bet

The rule remains, however, that the safest bet is in writing out-of-the-money calls. The underlying stock is less likely to be called out from under you; the value of the call will depreciate quickly as the expiration date nears (which, as a writer, you want to happen; that is, time decay is on your side); and you will almost always sell the underlying stock at a higher price if it is called.

There are advantages, also, to writing at-the-monies and in-the-monies, but the disadvantages outweigh the advantages. For instance, with in-the-monies, the stock may be called at any time, and the chances of participating in a bull market for the underlying stock are rare; and with at-the-monies, a small upward movement in the price of the underlying stock puts your position in jeopardy. Premiums are also higher for at-the-monies and in-the-monies, which means higher commissions.

Serious Mistakes in Trading

There is a serious mistake that even the pros managing trust accounts often make. This involves the selection of the underlying security for any covered call trades. Brokers like to set up discretionary covered call programs for their customers. On the surface, these are great income producers for the portfolio as well as for the broker. The broker stands to earn much more in commissions from a covered call account because he can legitimately buy and write options on the same underlying stock many times throughout the year.

Which stocks to be Selected

Less sophisticated portfolio managers will often select underlying stocks that have calls commanding typically high premiums. These are generally higher-priced stocks which the marketplace feels have great upside potential. The broker gets to write calls and to buy them back as the underlying stock approaches the striking price. Or he just lets the stock be called. His argument is that the portfolio gains in the long run because of the high income received from the call writing. But the truth is, the portfolio often does better when the call writing program is balanced so that the portfolio can not only be buffeted by call premiums but also by the underlying stock's participation in any bull market.

Covered call writing is a balancing act. The portfolio manager must always be calculating the comparative advantages of a straight call writing program against one that also squeezes additional profits from capital gains in the underlying stock. Clearly take this share trading tips for beginners for making earnings in stock market.