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Genworth Financial, Inc. Message Board

  • anthony111199 anthony111199 May 26, 2013 6:37 PM Flag

    Thinking about selling calls in my long position. I am looking for help and advice. Please help me.

    I am wrong to think that i can make money selling calls options against my long position. Advantages I see is getting up front money and favorable long tern tax rates on my options.

    Sentiment: Strong Buy

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    • Disadvantages of a covered call

      Every strategy has its disadvantages and the disadvantages of the covered call strategy are:

      You must continue to hold your stocks if you want to keep the sold call options.

      You are obligated to sell your stocks if the share price rises above the strike price of the sold call options through assignment at expiration.

      Covered call sellers get only limited protection while—to a degree—making the owner feel bound to hold on because of the covered call buyer’s right to buy the stock if it recovers.

      In reality, though, if a stock price drops dramatically, the covered calls become much cheaper, so the obligation to sell can be bought back for less than the original premium to eliminate the obligation.

      The main disadvantage comes from an unexpected upward movement of the price.


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