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Chapter 5. Options as Cash Generators > Examples: Ten Stocks and Covered Calls

Examples: Ten Stocks and Covered Calls

To illustrate how the basic covered call strategy works, we examine the 10 companies in our model portfolio, sharing three common attributes:

  1. Both listed options and long-term options (LEAPS) are available on the stocks.

  2. All of these stocks are assumed to have current market value above the original basis. (There is no justification for engaging in covered calls for stocks whose market value is lower than the basis; the conservative strategy works only when the stocks have appreciated in value since the time of purchase.)

  3. All stocks show current moderate price volatility levels. (If volatility in a stock is high, so is market risk; if it is too low, option premiums also are low, and the strategy may not be justified.)


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