covered calls

Writing covered calls means selling a person the right to buy your stock at a certain price (exercise or strike price), within a certain time period (expiration cycle). When you sell (write) an option on stock you already own, the option is "covered" by the stock you own; therefore it is referred to as a covered call option. The money you receive is additional cash you would not have had if you just bought the stock and did not sell an option.

Arizona Financial Software has designed a program to help you write, analyze, and track the writing of covered call options. This program provides you with the means to EVALUATE AND CONTROL your investment risk. It makes it possible for you to specifically measure your own "reward-risk" ratio before you invest one cent. Although it isn't possible to completely avoid risk, this program provides a reliable way to control it. Covered call writing can not prevent a stock from going down, but it can protect you on the downside. or in other words, hedge your risk of a move against you.

In their booklet "The Value Line to Option Strategies", the esteemed investment service Value Line states:

"Curiously, the most attractive option strategy when returns are concerned in relation to risk is covered call writing. It provided profits over 20% a year with relative consistency and it is only about half as risky as holding a portfolio of common stocks."

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