Given that options sellers take on an obligation, why would anyone sell them?
To invest. One of the general rules for using options is that options buyers are usually trying to profit from a view of the market and options sellers are investors (an exception would be when an investor buys puts to protect himself from a drop in the stock price). If you own shares, it is very important that you “cover” them by selling calls. This strategy is called “covered call writing”. There are a number of reasons an investor would do this: • Studies have shown that selling covered calls reduces the risk of a portfolio by 30% to 50%. • Theoretically, selling covered calls will maintain the same returns as would be achieved with an uncovered portfolio but with much less risk. Many studies have further found that selling covered calls actually increases your returns while reducing your risk. • Covered calls allow you to sell your stocks as they rise—they instill a proper discipline and remove much of the emotions that lead people into losses. Too often, investors become greedy, n
