Covered Call

What is a Covered Call? 

A covered call is a VERY conservative strategy that requires no margin. It’s a great way to create yield and lower your cost basis on your stock position, essentially lowering your risk.
 

A covered call is a strategy in which the trader holds a long position in a stock and sells a call option on the same stock. When the trader sells that call, he collects a premium … essentially writing and collecting on an insurance policy.

If you are new to options and options trading, covered calls are a great place to start as your risk is defined, and the trade has a great chance of success.
 

The Research 

Study after study has shown that selling covered calls is a great way to beat the S&P 500. Here are a few highlights of what those studies have shown: 

1. According to Goldman Sachs, derivatives strategists who sold one-month,

10-percent-out-of-the-money covered calls on S&P 500 Index stocks have outperformed the S&P 500 by 1.4% on average over the last 16 years.