Covered calls or covered call writing is an investment strategy wherein a call option is sold while simultaneously owning the underlying security. The option buyer or holder has the right, but not the obligation, to purchase the shares from the option seller at a certain price (strike price), by a specific date (expiration date). In return for undertaking this obligation, the option seller receives a premium. This option profit is the sellers to keep whether the option buyer exercises (buys the shares) the option or not.
This strategy works best in neutral, moderately bullish (uptrending) and moderately bearish (downtrending) markets. In fact, it is considered so safe that the government allows us to utilize this strategy in self-directed IRA accounts.
It's not unusual for bloggers to share investment tips and strategies for using covered calls.
by Alan Ellman
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