Bad5shah

cpk123 wrote:
Book seems to indicate otherwise.
selling a call + holding the underlying - is less risky than selling a naked call. By virtue of willingness to bear some risk - returns are also reduced. So a covered call by that definition has lower downside as well as lower upside.
first of all almost anything is going to be less risky than selling naked calls or puts.  that’s just inherent in the contract.  if i write naked insurance policies on natural disasters it’s going to be a lot more risky than if i go out and get reinsurance from a major reinsurer like lloyds of london or berkshire to back up what i’m writing.
you can quote whatever crap you want from the book and hope that some academic trash reading from CFAI will approve of your viewpoint.  but CFAI even confuses volatility - a pricing component of the option premium with volatility of the stock price itself (movement of underlying).  it’s really a joke.  put that on top of the fact that CFAI has some hard-on for butterfly trades while completely ignoring strangles and other more common trades, makes it all the more comical.  it really is one of the worst written sections in all of the curriculum and any basic options book by james bittman or lawrence macmillan would put it to shame.
covered calls are an income generating tactic and help lower your cost basis.  plain and simple.  CFAI even have an EOC question with 4 people who have varying market outlooks and various strategies assigned, that verify this viewpoint.  market going nowhere and you want to generate some income?  write calls.