Covered Call vs. Naked Put

Now let’s get back to the issue of the risk in a covered call trade. To make things definite, we will again use QCOM as an example. In late December 2003, you buy 100 shares of QCOM at $53, and to complete the covered call trade, you sell 1 Feb 55 call for $2 per share. This means that you have equivalently purchased the stock for $51 per share, and hence your maximum risk on this covered call trade is $5,100. See Figure 14-2 for a risk graph that depicts this trade.

Figure 14-2.

If QCOM is above $55 at the February options expiration, your stock will be called away, which provides you a profit ...

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