The Covered call strategy is an important and very popular among stock investors. Properly done, investors can capture both capital gains and cash flow. Many investors select a basket of stocks they like and sell calls against them hoping for a high rate of return. This strategy performs ok in a bull market and can do ok in a flat market. The strategy can be a challenge in a bearish market. Put-call parity tells us that covered call writing is the same as cash covered put writing. To be successful in this strategy, one must have a sound method of selecting the underlying security. But the challenge does not end there. The investment process must single out those situations where the call options sold are at least fairly valued and hopefully.
