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URL:  http://boards.fool.com/all-in-all-imho-covered-calls-give-you-the-25875179.aspx

Subject:  Re: Covered Calls Date:  9/6/2007  1:37 PM
Author:  swinginforfences Number:  59070 of 76392

All-in-all, IMHO, covered calls give you the illusion of a risk-free return. But they don't. People all the time treat a low probability occurrance as a zero probability occurrance.


I think I'm missing something here. If the stock tanks (the low probability occurance), well, you owned it before anyway. So the premium received for writing the call cushions the blow and doesn't add any downside risk to your portfolio, no? The catch, of course, is that you limit your upside if the stock takes off. I've sold covered calls primarily in my taxable account when I think a stock has peaked and I would like to sell it, but for tax reasons, I need to wait (for new calander year, cap gains reasons, etc.). I then take the proceeds and invest in something else, so while I've given up the upside on the position I've covered, I've really shifted my upside as an investor to a different security that I think has better upside potential at that point.
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