| Covered Calls
| |
| | reduce the basis in the equity position
|
| Options are most commonly used by
| |
| | by the premium received. In other words,
|
| investors for either leverage and / or
| |
| | he has hedged his position against any
|
| insurance (hedging). As leverage, options
| |
| | short term fluctuations his equity
|
| allow the investor to control an equity
| |
| | position may experience.
|
| position without paying 100% of the share
| |
| | Writing covered call options provide many
|
| price. For example, rather than going on
| |
| | benefits with the major reason being
|
| the open market and purchasing 100 shares
| |
| | collecting premium from the sale of such
|
| of IBM for $8,257 ($82.57 per share), an
| |
| | an option. The premium collected goes
|
| investor could control the same amount of
| |
| | into your account and can then be used to
|
| shares at a given strike price for a
| |
| | invest in other positions. The writer
|
| fraction of the cost such as the Jan 07
| |
| | keeps the premium regardless of whether
|
| $80 strike with a total cost of $1,050.
| |
| | or not the option is exercised. Another
|
| As insurance / hedge, options can assist
| |
| | important aspect with selling options is
|
| in protecting against price fluctuations.
| |
| | that of time value which now works for
|
| For example, the same IBM investor can
| |
| | you rather than against you.
|
| sell a call against his shares which will
| |
| |
|
