How to Place a Limit Order on a Covered Call in Stocks
- 1). Look up the bid and ask prices of both the stock and call option on which you want to trade a covered call.
- 2). Determine the bid/ask spread for the covered call. The ask will be the ask price of the stock minus bid of the call. This is the price you would pay if you placed a market order. The bid price will be lower and is the bid of the stock minus the ask price of the call. Most online stock broker order entry pages will provide these number as well as the mid point of the covered call bid and ask spread.
- 3). Select the price at which you want to place your limit order. For heavily traded options with daily activity of greater than 100 contracts, use the mid point between bid and ask. If the options are lightly traded you will need to shade your limit price towards the higher bid price.
- 4). Enter the number of stock shares you want to buy and number of call option contracts to sell on the covered call order entry screen. Remember, the ratio is one option contract for each 100 shares of stock. Under price select limit or debit and enter your selected limit price. Make the order a "day order." Enter "Trade," "Order" or "Confirm" to place the order with the stock broker.
- 5). Monitor the status of the covered call order. It will be either pending or filled. Monitor the stock price for any sudden price change. If the order is not filled within the first 15 minutes after entry, you will need to change the limit price higher to get a fill.