Originally Posted by
Duffman
Covered calls in this environment is a bad game. At best, the stock takes off on a COVID rally tear, gets called away, and you lose profit. At worst, it crashes and you're stuck holding the bag.
I'd like to know why you say this. When you sell the option to open, you have already made 2-4% on that invested money. It doesn't matter if the stock price goes through the roof. Your shares get called away. So what? You've already made your profit for the month. That profit is yours to keep in every scenario. The ONLY risk is that the stock drops in value. You now have a paper loss, only realized if you sell the underlying shares. But if you trade options in quality stocks, you are free to sell options at a lower strike price next month. The company could go bankrupt and the shares could become worthless but that's not likely and you can always sell the shares if you think that is going to happen, just like you would if you held the shares long. How many of us have held on to shares for years at a lower price than we paid? I know I have. Now, at least, I can make some income on those shares while I wait for them to return to profitable prices.
I've been selling options on CSCO for years. Sometimes the shares get called away (In which case my profit for the month is more like 4%) and sometimes the options expire worthless. In both cases I have made income for that option trading period.