Buy-write Discussion

Damon Bi, Analyst

A buy-write, or covered call, is one of most common option strategies traded in the market today. The strategy involves buying a portfolio of stocks, and then writing call options against the holdings.

The written (or sold) call option generates premium that cushions losses and may boost income payout. However, as per Figure 1, this cash premium comes at the opportunity cost of forfeiting part of any potential gain – should the share price rally beyond the strike price of the option.

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Buy-write Discussion