Chapter 12
The Buy-Write, or the Covered Call
The covered call strategy naturally extends from buying common stock. Using covered calls offers the possibility for immediate income and tends to be a safe investment, from the perspective of both a brokerage house and the investor who is eager to generate additional income for his portfolio. Thus, the covered call is a popular strategy for the individual investor. The concept is also easy to explain. Even so, it is one of the most misunderstood and perhaps overused option tactics available.
The Buy-Write (Covered Call) Defined
In its most basic form, an investor who owns (long) stock sells (writes) a near–at-the-money call or slightly out-of-the-money call. This strategy is called covered if the ...
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