Covered call writing is the most common options trading strategies used by individual and professionals alike. Some people believe it is a low-risk strategy that generates income. We like to remind our readers that it is a "lower" risk strategy as compared to owning stock alone on a stand-alone basis. It is important to remember a covered call strategy has the same payoff pattern as a cash covered put strategy, which most investors recognize as a strategy that exposes investors to large downside risks. We like to remind our readers of this fact from time to time and if you have not read our discussion of the buy-write strategy, we suggest you do by clicking this hot link. Realized and Implied volatility on individual stocks is currently very depressed. Over the last 3 months, the average stock in the S&P 500 has experienced a volatility of 20%. This compares to 26% for the last 12 months. 24% of the stocks in the S&P 500 are experiencing volatility 0f less than 14% and half are experiencing volatility of 19% or less. These depressed volatilities are reflected in the VIX index, which is currently at 10%.
