Chapter 14. Covered Calls

One of the first strategies that someone new to options hears about is the covered call trade. Frequently, this strategy is touted as a safe and simple way to make money with options. Many brokerage firms allow covered calls as the only option trade that can be made in a retirement account because it is “conservative.”

Unfortunately, describing covered call trades as conservative is somewhat misleading. Those same brokers who only allow covered call trades in retirement accounts will claim that selling naked puts is much too risky to be allowed in a retirement account. Well, at least they got that part correct—selling naked puts does involve significant risk. The truth is that a covered call trade carries essentially ...

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