The Covered Call: An Income-Generating Options Strategy
The covered call provides extra income to a buy-and-hold strategy. In exchange for this income, there is a risk of lost opportunity. If the stock’s price rises well above the fixed strike price of the call, you have your 100 shares of stock called away below current market value. For some investors, this is an unacceptable risk; for others, it is gladly accepted given the potential extra returns from writing covered calls.
A Few Options Basics
The popularity of options trading has grown in recent years. Many investors and traders have realized that options can be used not only to speculate, but also as a means for managing a long-term stock portfolio, taking profits without needing to sell stock, and reducing the threat of losses. Among the dozens of possible strategies, covered call writing is especially popular for its potential to generate extra income for a portfolio.
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