Covered call writing is the most common options trading strategy used by individuals 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 on a stand-alone basis. But it is not necessarily “low-risk,” and the investor gives us large upside to lower risk at the margin and increase income. 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.
