Anticipations
A downward move in the underlying asset.
Characteristics
Max profit - limited.
Max loss - unlimited.
Creating
Sell call option and buy underlying
security.
Example
Buy 100 shares (QQQ) - $35
Short 1 QQQ 40 Call - $0.65
Max profit = $[(40 - 35) + 0.65] * 100 = $565
Max loss = unlimited
Option Position at Expiration
Comments
Covered call writing is where the trader or investor owns an equal amount of the underlying asset for which the calls are written. This strategy benefits from a slight increase or a decrease in the price of the underlying asset.
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