Economics of Covered and Protective Positions

What this video covers

• Why a covered call (long stock plus short call) generates income but caps maximum gain at the strike, with breakeven equal to stock cost minus premium received
• How the protective put, also called the married put, works as portfolio insurance with unlimited upside and a loss capped at stock cost minus strike plus premium paid
• Why a covered put (short stock plus short put) carries unlimited maximum loss because the underlying short stock has no price ceiling
• The premium-direction rule: receiving premium moves breakeven in your favor, paying premium moves it against you
• How to compute breakeven, max gain, and max loss for each of the three positions from a single price-and-premium prompt
• The distinction between writing an option for income versus buying an option for downside protection, and how that maps to capped versus unlimited risk
• Which position to rule out when a client wants income but cannot tolerate catastrophic loss