Specialty Programs

Covered Call Option Income

Option strategies can generate additional income and reduce risk of permanent capital loss in investment portfolios.

Covered Call Writing involves owning an underlying asset (such as stocks or ETFs) while selling call options on those same assets. The strategy generates income through premiums received from selling call options.
It allows investors to capture some income from the premium while limiting the upside if the stock appreciates significantly beyond the strike price.
This strategy offers lower volatility compared to direct equity holdings and can be beneficial in markets that are flat, declining, or steadily rising.

Income Generation: Selling call options produces a consistent cash flow for portfolios, providing another stream of income along with dividends and capital gains.
Risk Mitigation: Premiums received can offset downside risk in declining markets.
Market Participation: The portfolio can still benefit from growth when the stock price rises, depending on how far "out-of-the-money" the calls are sold.
Diversification: Adds a unique income stream that is uncorrelated with traditional bond portfolios, especially during periods of rising interest rates and market volatility.

In down markets, covered calls often outperform due to the income generated from premiums, which cushions the downside.
In flat markets, the strategy shines as it generates income even when stock prices remain stagnant.
In up markets, covered calls perform well unless the stock price rises rapidly, which forces the sale of the underlying asset, limiting upside gains.
Generally, the more volatile a market the greater the option premiums. An excellent way to monetize market volatility.

Market Risk: As the strategy involves owning stocks, the portfolio is exposed to the usual risk of equity price declines.
Opportunity Risk: If the stock appreciates beyond the strike price, the upside potential is capped, as the investor is forced to sell the stock at a lower price than market value, or buy the option back.

Several approaches to implementing covered call strategies are available, ranging from writing options on individual stocks to using index-based strategies. Actively managed approaches can offer higher premium income through selective option writing.
To acquire ownership in companies at a lower than current price, when the shares are "on sale", a put option strategy can be lucrative.

Covered call strategies have different tax implications depending on whether the income comes from dividends, option premiums, or capital gains. Investors must understand the impact of option-related taxes, which may be taxed as short-term gains.

Fees:

Clients enrolled in our option writing programs usually generate a multiple of the advisory fee incurred. It pays to focus on facts.

Covered call strategies provide a balanced approach to participating in the equity market while generating income and mitigating risk.
These strategies are especially useful for investors looking for an income solution during times of low yields and high market volatility.
Generally these alternatives are implemented in separately managed accounts, to tailor investor objectives.
This strategy can accommodate different risk profiles, making it suitable for conservative, moderate, or aggressive portfolios, depending on the specific goals and risk tolerance of the investor.
To learn more about this and other option strategies such as the "Cash Secured Put Option Strategy" to manage investment risks when markets decline: Contact Us.