Covered Calls: An Investing Technique For Fun Only

Descrbes the investing technique of writing call options while owning the stock, a technique known as covered call writing, and a technique that is promoted by many investing experts and advisories. Critically analyzes this technique concluding that it is not successful.

Category:

Education

Tags:

• investing
• covered
• call
• writing
• options
• stock
• markets
• market
• efficiency
• taxes

[maximizeutility]

You did not finish your thought. But as for your counter argument that it is easy to point our flaws, that is neither valid nor is it appropriate here (that is more of an argument you use when you are judging people). My case it that it is very unlikely that you will make money doing covered calls. It's funny how the covered calls "chatter" has died down a lot. What happened to those master of covered call writing, who were so prevalent in the 1990s?

[maximizeutility]

Whether you or I call it a "flaw" or not, it is still a tradeoff, and a tradeoff that I doubt pays off. Good luck to you if you should choose to write covered calls. I would guess that you are looking at a 90%+ chance of losing money.

[anger42]

you "dont know if they are having any success at writing covered calls". My friend if the big investment firms are doing it...then they are making money at it. I seriously doubt they would take the time or risk to write covered calls if it served no purpose. They are either making money doing it or they are hedging their risk of a down side by writing covered calls. Either way it serves a purpose. I have written many covered calls and have made a good return on doing so.

[maximizeutility]

@anger42

I have known a number of people who have tried CC. All dumped it. CC was very popular in the late 1990s. That seemed to all fade away. Do you know any hedge funds that do CC? I do not (and I am in the hedge fund business). Which big investment firm are you taking about? As for your own record, are you sure you are tallying every trade? I am not sure, but my guess is the James Stewart of the WSJ is not successful with CC. He does not report his record completely, though.

[dan13476]

Interesting video thanks. Covered calls are just a tool at the end of the day, & people need to find one that suits their mindset & objectives in the market. I don't think it's the holy grail of investing as it is sometimes claimed, but it works as expected for me.

So keep on buying those options, and I'll keep writing them :). Sometimes I'll lose the upside - but bear in mind I choose the price I'm happy to sell at.

All strategies work for some people.

No strategies work for all people.

[rambetter]

I enjoyed your video, thanks.

[alter3go]

It's interesting to hear that it doesn't work. It's always easy to point out flaws. It would be more interesting

[grperez]

For fun only? I disagree. When you buy a stock you take on all the risk of ownership with or without selling calls against it. Covered calls is selling the right to buy your stock - simple as that. It makes perfect sense. You say the most fundamental flaw is that you lose the upside for your stock. This is not a flaw, this is what you get paid for when you sell the option. If the stock price goes down you can still sell it, just buy back the call (probably for profit) and you will lose less.