Pete Najarian: How to Use Covered Calls to Strengthen Your Stocks

Pete Najarian: How to Use Covered Calls to Strengthen Your Stocks


Most people know Pete Najarian from TV as a short-term options trader making quick moves on unusual options activity. But you might be surprised to know that Pete’s also been a stockholder since his 30’s. 

In the clip below, Pete Najarian details the importance of building a long term portfolio.

“First I ever put in my portfolio was Apple. […] I was in my thirties, and I decided to start actually holding on to stocks and not just trading everything. That’s when I started doing the buy-writes. Literally back then. So I had one stock. Then I had three stocks. Then I had six or eight stocks. And I still do enjoy the trading side of things, but I think it’s great to have some kind of base of these pillars of stocks in your portfolio.”

Notice the word build. Pete didn’t go out and buy a mass of stocks all at once. He built up a breadth of stocks over time, carefully vetting the companies for their long term potential.

You might ask questions like, “Does this stock offer a dividend?”, “What does the debt of this company look like?”, or even, “What are their long term growth expectations?” 

These are the questions that Pete and our analysts ask time and time again before adding names to their portfolio. 

Pete goes on to talk about buy-writes — aka, covered calls.

What is a covered call? How can I execute the strategy?

“Buy a stock, sell a call — whatever call you want. That’s one of the things I think is really important that we do each and every week when we do this. We’ll talk about, […] “You know, you want to be a little bit more aggressive in Apple and you wanna be in front of the earnings, okay, you’re going to sell this particular call. But if you’re a little bit less aggressive and you’re maybe at work and you’re not around as much, you’re going to want to sell this call.”

Pete is a master at explaining things simply, and that’s what he does in this clip. Asked, “how do you execute the covered call strategy?”, he answered, “You buy a stock, you write a call.” That’s all there is to it! 

But as with many things, the covered call is easy to understand, and difficult to master. It takes a keen eye to know when to sell a call, and when to just hold out. As well, it takes nuance to determine what strike you should sell. 

That answer could vary depending on how active you are, and that’s what makes this covered call strategy so versatile! If you’re an active trader, you can get away with selling a call that’s closer to the money, one that you’ll take off at the exact right moment, allowing you to potentially collect more premium. 

If you’re an inactive trader, or just an investor looking to get a little extra boost on your stock holdings, you might err further on the side of caution. For instance, you could choose to sell something further from the money, that’s more likely to expire worthless (meaning it requires less babysitting).

No matter what type of call you choose to sell, it helps to have guidance when executing the strategy to ensure that you’re getting the most out of your long term portfolio. That’s why we created Pete’s Covered Calls.

Pete’s Covered Calls is a comprehensive service offering a top-down view of Pete’s hand-picked portfolio of stocks. Every week, he takes you through the specific calls he’s selling so you can learn to maximize your portfolio’s potential through the power of premium collection. Curious how you can get started investing with Pete? Check out this link to learn more.

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