Covered call writing means You own a stock (s+) and you write call option on the stock (c-). WHY? I) you are overweight on the stock the weight of the stock in the portfolio is greater than what is justified so you need to sell the certain portion (benefit of diversification) RISK.... Here you run tRead more
Covered call writing means
You own a stock (s+) and you write call option on the stock (c-).
WHY?
I) you are overweight on the stock the weight of the stock in the portfolio is greater than what is justified so you need to sell the certain portion (benefit of diversification)
RISK…. Here you run the risk of stock price crashing.
II) you expect the stock to be flat you are in no hurry to offload the stock . It means you will keep on holding the stock unless the stock price significantly rises – whose probability are you rulling out.. your money stuck up causing you the pain so you decide to generate income on a regular basis you decide to write ( OTM CALL)
RISK…. YOU run the risk of regret that is opportunity cost if the stock price steeply rises …
Hope this helps
Options
Covered call writing means You own a stock (s+) and you write call option on the stock (c-). WHY? I) you are overweight on the stock the weight of the stock in the portfolio is greater than what is justified so you need to sell the certain portion (benefit of diversification) RISK.... Here you run tRead more
Covered call writing means
See lessYou own a stock (s+) and you write call option on the stock (c-).
WHY?
I) you are overweight on the stock the weight of the stock in the portfolio is greater than what is justified so you need to sell the certain portion (benefit of diversification)
RISK…. Here you run the risk of stock price crashing.
II) you expect the stock to be flat you are in no hurry to offload the stock . It means you will keep on holding the stock unless the stock price significantly rises – whose probability are you rulling out.. your money stuck up causing you the pain so you decide to generate income on a regular basis you decide to write ( OTM CALL)
RISK…. YOU run the risk of regret that is opportunity cost if the stock price steeply rises …
Hope this helps