Introduction
Leveraging covered call options in opportunistic or conservative scenarios may augment overall portfolio returns while mitigating risk in a meaningful manner. In brief, options are a form of derivative trading that traders can utilize in order to initiate a short or long position via the sale or purchase of contacts. A call option is a contract which gives the buyer of the contract the right, but not the obligation, to buy the underlying security at a specified price on or before a specified date. The seller has the obligation to sell the underlying security if the buyer exercises the call option. A call option gives the owner (buyer) the right to buy the security at a specific price is referred to as a call (bullish); an option that gives the right of the owner to sell the security at a specific price is referred to as a put (bearish). In the event of a covered call, this is accomplished by leveraging the shares one currently owns by selling a call contact against those shares and collecting a premium. I will provide an overview of the theory vs. empirical practice based on my covered call activity during Q1 2016. Here, I’ll provide details focusing on optimizing stock leverage via covered calls. Emphasizing the ability to sell these types of options in an opportunistic, aggressive and disciplined manner to generate liquidity while accentuating returns and mitigating risk via empirical data.
