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- You do have to be careful when the stock is well-below your cost basis and you perform covered calls. Many investors write calls as soon as they buy the stock..........
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- Many banks are just simply unwilling to take on additional risk right now, even with those that have above average credit.
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If you own 100 shares or more in a company that does not pay dividends but that does trade options, you can still receive income from your stock by writing covered calls. When you write a call, you are selling a derivative (financial contract whose value derives from the value of the underlyi
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1 year ago
that's like make dividends from stocks that you don't even own! ;-)
1 year ago
stocks don't move smoothly, and the distribution of movement over same-size intervals is manifestly not normal. unless you knowingly are the owner of a stock which is overvalued (a curious situation) there is considerable real risk which you take on for the small premium of a far-from-money covered call.
1 year ago
Well, it's not really 75% if you take into account the margin requirement. What was the real return if you account for the margin requirement? I don't like selling naked options because of the very high margin requirements. I prefer to use use vertical spreads to limit losses as well as reduce the margin requirements. Even if you use stop loss orders, if the stock makes a big after-market/pre-market move against you, the stop loss isn't going to help when the options market opens and your short is way more expensive to buy back.
1 year ago
Well, the Microsoft example was using figures from a few days ago, if you want to call that “quantitative.” It isn’t too far off from $28 right now, and the April calls are still selling for around $0.60 (granted, it’s still a little more than a month away from expiring, since the expiration is on April 18). There are plenty of other stocks out there that can provide similar returns with covered calls. I you are in the curious situation of owning an overvalued stock, your risk is on the downside potential of the stock price, not from receiving a small premium on a call.
2 months ago