Options  |  FEB 2011

Investment VS Trading In Covered Call Writing by Jay Kaeppel

With the investment approach, shares of stock are viewed as rental property and calls are written to generate additional income from what is expected to be a longer-term stock investment. The trading approach involves executing buy/writes based on the possibility of generating a high annualized rate of return on a given stock/option combination. Which is better? It can be argued that covered call writing is the second-most commonly used option trading strategy, trailing only straight call and put buying. This is not surprising, since many investors assert that covered call writing is tantamount to collecting free money. While this is not actually true, in order to understand why this belief persists, let’s first look at what constitutes a covered call .

by Jay Kaeppel