Covered calls are popular and powerful trading strategies for many reasons. Above all else, an overwriting system can work in just about any type of market. There aren’t many strategies that offer a benefit in most market environments.
As a reminder, investors make covered calls when they buy a stock (in blocks of 100 shares) and sell one call for every block. The call sale provides a cash flow component to the trade, while the remaining shares serve as collateral. Depending on where the call is sold, there also may be share appreciation potential with the trade.
Most of the time, out-of-the-money (OTM) or at-the-money (ATM) calls are sold, versus shares of the stock. OTM calls provide the investor the opportunity to…