Covered Calls

A covered call is where someone requests to buy a stock at a particular date, for a particular price, and for that favour, 
the option writer gets a fee.  This fee effectively lowers risk as a covered call writer, the stock 
can go down by as much as the fee for that share below the buy price before you reach break 
even, and potentially lose money.  The profit potential is the promised price (strike price) 
minus the price paid when the stock was purchased, plus the fee.  Sounds pretty good to me 
too, I have to admit.  The only downside is if the stock drops below breakeven, you're stuck 
with a stock that could be losing you money.  Still, it certainly seems like something worthwhile 
considering doesn't it?

There are two types of covered call, a put and a call.  A call is something that you would do when the price is going up, and a put is what you would do when the price is going down.

I then got thinking about this, and thought that if you combined it with a value stock, even if that did happen, it wouldn't be the end of the 
world since you believe in that stock, if the company fundamentals still stack up.

So you'd only really want to do a call with a stock that you were fairly certain was going to go up, to amplify your gains.  If stock goes down, I don't think that this is the place to be when it does.

There's also the downside that if the option is exercised and your stock is a value stock, then whilst you made a profit, you also lost your valuable stock, which may limit what you earn.  Thining further on from that, you could probably buy back your position with more shares, so long as the call didn't occur during a major move.

Now, the opposite side of the covered call, is the person who wants the stock at a particular price, that's kind of like buying insurance, if you think about it?  You expect the price of a stock to get to a certain level, and you want to get it at a discount.  I guess it would be a way to purchase more stock in a bullish market (one where the price is going up) at a discount.  If you were to do this, then you could minimize the buy price of a stock to the strike price plus the premium fee, and could invest funds in another stock until you exercise the buy.  This process limits the risk to the premium fee, and allows an unlimited growth.  This really is insurance.  So if you can get a stock at a price that when added to the covered call premium is still less than the value of the stock, you're onto a winner, since you limit your risk for buying more shares without tying up money.