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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75540  
Subject: Re: Covered Calls Date: 8/14/2007 1:56 PM
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Depending on circumstances, covered calls can work well. The "gotcha" tends to be that when stocks are in a downturn and there's a lot of bearish sentiment out there -- precisely the time many investors want to pick up a little extra income to cushion the losses -- is also the time when the premiums for writing the calls is at its lowest.

For example, a 110 covered call on a stock now trading at $100 might fetch a premium of (say) $5 in a decent market, but drop to $1 or $2 in a bear market because few people believe the call will have a chance to go "in the money."

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