This article is from Mike Scanlin, CEO of Born To Sell, a site providing insight and trading ideas on selling covered call options.

It’s true that the options trading strategy of selling covered calls during a rising market can be a mistake. It doesn’t make a lot of sense to cap your upside when stocks are booming. However, there is an argument to be made for the strategy if you are writing short-term options, or trading on margin, or trading around a news event (say a product or earnings announcement). That’s because selling covered calls even when the market is rising can increase your downside protection.

Here are six reasons why you may want to consider selling covered calls in a rising market:

1 — Momentum

Maybe a stock has risen more than the market recently and the momentum traders are doubling down. In doing so they usually increase the call premiums to where they’re just too juicy to not try a deep in the money buy-write. Anybody look lately at Netflix (NASDAQ: NFLX)  Lululemon Athletica (NASDAQ: LULU),  or Chipotle Mexican Grill (NYSE: CMG)? These can be highly volatile so it is probably wise to keep the durations short (i.e. sell the near month, and not four to six months out).

2 — Pending News

Before a big news announcement, for example, Apple (NASDAQ: AAPL) with respect to Verizon (NYSE: VZ) iPhone, or any company before an earnings announcement) the option premiums tend to increase. Rather than buying into the hype, consider selling the hype by selling covered calls. The amount in- or out-of-the-money should scale with your opinion of which way the news will fall.

3 — Margin

When trading on margin you need to be extra careful. You can get hurt quickly if there is a sudden move against you. One way to increase your protection is by selling deep in-the- money calls. You may still lose money if there is a dramatic move down, but the call premium should buy you time to exit the position (if you need to) with fewer losses than you would have had if you had merely held the stock long.

4 — Taking some off the Table

Don’t be too greedy. After you’ve had a nice run in a stock it is prudent to either (1) sell a portion of the stock, or (2) write some calls against it so that if it gives back some of its recent gains you can capture some profit from the call premium. Often these can be combined by selling covered calls that are in-the-money on the portion of the stock you want to sell anyway. That way you eek out a bit more profit from the position. Or, if you’re still very bullish then try selling some near-term out-of-the-money covered calls.

5 — Partial Cover

If you can’t make up your mind whether you should cover the entire holding, then consider selling covered calls on part of your position. You’ll end up being half right and half wrong at the same time, but at least you won’t have been all wrong.

6 — Monthly Income

If you have core holdings that you plan to own for the long-term then why not write some out-of-the-money calls on them to generate some extra income (even if they’re rising in a bull market)? Depending how far out-of-the-money you choose, you may need to sell several months worth of time instead of near-month (to cover the transaction costs).

Mike Scanlin operates Born To Sell, a web site dedicated to helping people earn monthly income from selling call options.