Covered Call Writing for Equity Options
Chapters in this video
- 0:00 Why Carla wants income from her stock
- 1:10 Buy-write construction and the covered vs naked distinction
- 2:33 Max gain, max loss, and break-even on a 50/55/3 example
- 5:39 Covered call vs protective put: income vs full hedge
- 7:00 Ex-dividend early assignment on in-the-money calls
- 8:16 Rapid-fire exam recap
What this video covers
- How a covered call (also called a buy-write) is constructed from 100 shares of stock plus one short call, and why "covered" means the writer can actually deliver
- The difference between a covered call and a naked call, and why naked calls carry theoretically unlimited upside risk
- Maximum gain on a covered call: strike price minus stock purchase price, plus the premium received
- Maximum loss and break-even, both anchored on stock purchase price minus the premium, and why the premium only provides a partial cushion
- Why a covered call is NOT a full hedge, and why a protective put is the correct answer when an exam question asks for maximum downside protection
- Why covered calls fit a neutral to slightly bullish outlook focused on income generation
- When early assignment risk spikes: an in-the-money short call right before the ex-dividend date on American-style equity options
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