The Art of Trading Covered Writes [1 video (AVI)] by Dan Sheridan
The Art of Trading Covered Writes: A Detailed Review of Dan Sheridan’s Instructional Video
In the dynamic world of investment strategies, “The Art of Trading Covered Writes” emerges as an essential educational resource for traders ranging from beginners to seasoned professionals. Created by Dan Sheridan, a veteran market maker with over 22 years of experience at the Chicago Board Options Exchange (CBOE), this video tutorial provides an in-depth exploration of covered write strategies—a powerful technique combining stock ownership with option selling.
This review examines the core concepts Sheridan presents, illustrating how his pragmatic approach can help traders generate income, manage risk, and align their trading with varied market outlooks.
Understanding Covered Writes: Definition and Core Strategy
Covered writing involves holding a stock position while simultaneously selling call options against those shares. This dual strategy enables traders to collect premiums from option sales, providing immediate income while retaining ownership of the underlying stock.
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Premium Income: Selling call options generates a cash premium that serves as income and a buffer during sideways or declining markets.
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Ownership Retained: Traders maintain the potential for stock appreciation, albeit capped by the strike price of the sold calls.
Sheridan’s tutorial explains this balance clearly, emphasizing how covered writes blend income generation with strategic market positioning.
Benefits of Trading Covered Writes
Generating Income
One of the most attractive features of covered writes is the steady income stream they create. Sheridan highlights how this approach is especially useful in stable or sideways markets, allowing traders to profit even without significant stock price movements.
Managing Exit Prices
By selecting appropriate strike prices, traders effectively set planned exit points for their stock holdings. This tactical choice helps in financial planning and maximizing potential returns, an aspect Sheridan underlines with practical guidance.
Market Outlook Alignment
Covered writes excel for traders with a neutral to slightly bearish outlook. This strategy leverages moderate market views, generating income while protecting against minor downturns.
Risks and Adjustments
Sheridan provides a candid discussion about risks:
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Sudden Stock Price Drops: Sharp declines in the underlying stock can lead to losses despite premium income.
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Assignment Risk: The possibility of being required to sell the stock at the strike price.
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Market Volatility: Fluctuating markets can affect premium values and trade outcomes.
Mitigation Strategies
Sheridan stresses the importance of proactive risk management through:
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Stop-loss orders to limit downside exposure
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Adjusting strike prices on upcoming options to respond to changing conditions
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Using spread strategies to hedge against volatility
These tools are vital for maintaining profitability while managing the inherent risks of covered writes.
Practical Application and Engagement
What distinguishes Sheridan’s video is its emphasis on real-world application. Beyond theory, he shares case studies, step-by-step demonstrations, and examples of successful trades. His interactive webinars and CBOE TV series add further value, providing opportunities for Q&A and personalized guidance.
This approach fosters a learning community, where traders can build skills collaboratively and gain confidence through shared experiences.
Real-World Examples
Sheridan highlights traders who have consistently generated monthly income by diligently applying covered write strategies. In today’s uncertain markets, this income-focused method offers a practical edge, helping traders weather volatility while still capturing profit opportunities.
Conclusion: Elevate Your Trading Skills Through Covered Writes
Dan Sheridan’s “The Art of Trading Covered Writes” is a comprehensive and practical tutorial that benefits traders at all experience levels. By demystifying covered writing, emphasizing risk management, and providing actionable strategies, Sheridan empowers traders to enhance their options trading capabilities.
Whether you seek to generate consistent income, manage exit strategies, or better navigate market conditions, this video serves as a valuable tool in your trading arsenal. For those aiming to deepen their options knowledge and foster a supportive trading community, Sheridan’s tutorial is a highly recommended resource.
