Since Covered Calls are options, aren’t they risky?
Over 80% of the time, options expire worthless. Thus, the option buyer loses 100% of their option premium most of the time. This is risky, but option buyers are willing to assume that risk. The opposite is true for the option seller, especially if the seller owns the stock or ETF upon which the option is based. This is known as a “covered” call and is considered to be a conservative strategy. In fact, in many respects, selling covered calls is safer than simply owning the stock. If the seller of the option does not own the stock, it is not covered and, thus, is referred to as a “naked” option. Selling a naked call is also risky because if the price of the stock exceeds the strike price at the end of the option term the naked seller must purchase the stock at the current market value and sell it for the lower strike price, potentially losing a significant amount of money. In the previous example, if the price of XME was to rise significantly over the call strike price in that one month,
