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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe -- Ignore unavailable to you. Want to Upgrade?

To: tyc:> who wrote (693)	9/23/2002 12:42:32 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 1064

why would anyone buy a covered call Covered calls are permitted in most cash accounts, while short puts are often not permitted. If you happen to have an account that does not pay at least risk free interest on cash backing a short put, the covered call brings in a bit more premium. This is not a big deal with interest rates as low as they are now, but can be significant when rates are high. And it seems a lot of people are just more comfortable with the CC position than they are with the naked puts. A lot of CC writers are fairly conservative, and do not care to use the extra leverage they might get from the naked puts anyway.

To: tyc:> who wrote (693)	9/23/2002 1:01:29 PM
From: Ira Player	Respond to of 1064

Covered calls also have increased transaction costs, both commission and slippage. I do not know why anyone would transition from cash to a covered call position. A short put is more efficient and allows higher leverage, if that is desired. Covered calls do have a place in the investors bag of tricks however. If you have a highly appreciated asset in a taxable account, (maybe you bought MSFT in '86) a covered call can be a tax efficient method of profiting form a slight downturn without incurring the taxes a sale would trigger. Ira