Chapter 5. Options as Cash Generators
Covered call writing is a conservative strategy. The key is in exploiting time value premium. For the strategy to make sense, your basis in stock must justify the short position, option premium must be adequate to justify the risk of exercise, and you must know the tax ramifications before you open short positions. Tax rules for short options are odd and complex, but they cannot be ignored.
The covered call is among the most attractive of conservative option strategies. It provides an impressive rate of return when properly structured, and it does not increase the most common forms of risk. In fact, market risk—your exposure to lost value in your stock—is reduced with the covered call strategy.
In this chapter, ...
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