Covered Call Writing
To the Editor:
Michael Thomsett’s article on covered calls (“The Covered Call: An Income-Generating Options Strategy,” August 2010 AAII Journal) clearly explained the process and benefits but I think he minimized the income possibilities by shying away from stocks one wants to retain long term and by not restricting purchases to lower-cost stocks. An option at $0.50 on a $10.00 stock is a 5% return (not including dividends, when applicable). If that can be replicated quarterly, then that is 20% annually. Assuming 50% for taxes, that still nets 10% per year.
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