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Chapter 5. Options as Cash Generators > A Conservative Approach

A Conservative Approach

Proceeding from the ground rules for covered call writing, the next step is to determine exactly what makes elements of the strategy advantageous. As a conservative investor, what are the primary attributes you need to enter a profitable conservative strategy? There are three: appreciated value in the stock, time value premium, and downside protection.

Element 1: Appreciated value in the stock. As long as the current value is higher than your basis, you have great profit flexibility in entering a covered call strategy. By this, we mean that with those paper profits, you can build in a greater certainty of profits. For example, consider how different the return scenario looks in the two following examples:


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