An Introduction To Covered Calls And How Ultra High Yield Funds Achieve 10%+ Yields
How this popular options strategy is used to generate massive cash flow.
Having written about several covered call ETFs in the past few weeks and explaining how covered calls work in every single article, it occurred to me that it would do all of us some good if I wrote an article about covered calls.
In the last few years, covered calls have become increasingly popular, with nearly all fund managers creating their own covered call fund. This strategy has been around for a long time, but news of rising interest rates and a possibility of a recession has been popularizing this options strategy lately.
Fundamentally, selling covered calls is a strategy that caps your potential upside but hedges your portfolio in downturns.
The idea is that you sell a call option at a specific price which states that you're obligated to sell your shares at that price if the stock's market price hits or exceeds the strike price. Doing this generates an option premium which makes up the bulk of the dividends these covered call ETFs distribute.
The covered part of writing covered calls is that you're writing calls on shares that you already own. There is no leverage (unless you…