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Covered calls
Sep. 25th, 2024 02:30 pmPrevious part is here.
Covered call is the opposite of naked call where you can lose a theoretically unlimited amount if you sell the option and the underlying stock goes up into stratosphere. The covered call strategy, aka buy-write, involves a long position in the stock and a short call on the same underlying.
( Read more... )
It is important to note that the covered call strategy is more conservative, not just more profitable, than the traditional buy-and-hold. This is because by writing calls against your long stock position you narrow the distribution of future returns, i.e. the worst returns become a little less bad, and the best returns become less good. The latter is the part of the trade-off – there are no miracles.
Questions? Let me know if you read it and everything is clear. Comment is better, like is good enough.
Covered call is the opposite of naked call where you can lose a theoretically unlimited amount if you sell the option and the underlying stock goes up into stratosphere. The covered call strategy, aka buy-write, involves a long position in the stock and a short call on the same underlying.
( Read more... )
It is important to note that the covered call strategy is more conservative, not just more profitable, than the traditional buy-and-hold. This is because by writing calls against your long stock position you narrow the distribution of future returns, i.e. the worst returns become a little less bad, and the best returns become less good. The latter is the part of the trade-off – there are no miracles.
Questions? Let me know if you read it and everything is clear. Comment is better, like is good enough.
