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Strategy View
An investor holds an inventory but does not think the its value will rise
in the short term, or that the value will remain neutral, income can be
gained by selling call options against the stock holding.
Strategy Implementation
Call options are sold at strike a.
The number of call options sold is a function of investor market view
and inventory size.
Upside Potential
Limited. By selling calls, the investor is writing off the potential profit
of the stock position. Maximum profit is the strike minus the market price
plus the premium received.
Downside Risk
Great. Similar to that incurred with ordinary stock ownership, only off-set
partially by the (fixed) option premium received. Main loss could be the
opportunity loss if the market rises strongly.
Margin
Always required. |
