Options Trading for the Institutional Investor: Managing Risk in Financial Institutions by Michael C. Thomsett

Author:Michael C. Thomsett [Thomsett, Michael C.]
Language: eng
Format: mobi
Publisher: Pearson Education
Published: 2014-03-18T00:00:00+00:00

You are willing to accept exercise as one of the possible outcomes—In every covered call position, you have to accept the possibility that your 100 shares of stock will be called away. In fact, some investors are drawn to options with the original idea of accepting exercise and selling shares, only to realize that repetitive covered call selling could be more profitable. If you do not want exercise under any circumstances, you should not write covered calls. For example, if you have a large amount of profit, but you don’t want to sell until you reach the long-term holding period, writing covered calls and risking exercise is ill advised. However, for many investors, covered call writing is a smart alternative to simply selling shares. Keeping shares of stock and the associated dividend income and selling calls to realize short-term profits is one effective way to achieve current returns.

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