Covered call option

**Churchill** · 9 March 2012, 07:54

Originally posted by Friday Blue View Post

Morning all,

Just came across something called "covered call option". did abit of digging on the internet, anyone is into this kind of thing? Got couple of questions which i'm hoping you guys may be able to help:

1, I heard FXCM do this kind of options, but when i go onto their website, it's not very specific which account to open (part of spread bet?). Any idea which one to go for? or even better, any other providers for such options?

2, I got an account with TD at the moment, they do something call "covered warrant", i believe this is not the same thing as "covered call option", but it's not very clear what are the differences, can anyone recommend any article to read up on?

PS: yea, i know, i have very little to none knowledge at the moment, but would appreciate some good start points.

Cheers,

FB

A fool and his money...

**Friday Blue** · 9 March 2012, 08:09

Originally posted by Churchill View Post

A fool and his money...

correction, a fool with no money, just want to learn more

**IR35 Avoider** · 9 March 2012, 08:15

A covered call is one of the more sensible and conservative options strategies I've come across. Having said that, I've always found with options that once you properly understand all the extra obstacles and costs you face as a retail investor, any strategy that might make sense in theory becomes unattractive in practise, and you are better off just investing in ordinary funds.

Compared to plonking your money in the cheapest equity index fund you can find, there is no extra risk-adjusted return to be made by using options, all options do is alter the pattern of returns and losses somewhat. And that is ignoring the aforementioned obstacles and costs. Once you take the extra costs into account, the risk-adjusted return is actually worse.

Edit: Although the charges are higher than I'm willing to pay, if you are set on the idea of covered calls, you could invest in a fund like Schroder Income Maximiser that will do it all for you. There's at least one other fund that also has a covered call strategy, but I don't remember the name. The cost overhead of these funds may make them less attractive than the cheapest index fund to me, but their risk-adjusted return is going to be better than you could achieve directly.

**Friday Blue** · 9 March 2012, 08:27

Originally posted by IR35 Avoider View Post

A covered call is one of the more sensible and conservative options strategies I've come across. Having said that, I've always found with options that once you properly understand all the extra obstacles and costs you face as a retail investor, any strategy that might make sense in theory becomes unattractive in practise, and you are better off just investing in ordinary funds.

Compared to plonking your money in the cheapest equity index fund you can find, there is no extra risk-adjusted return to be made by using options, all options do is alter the pattern somewhat. And that is ignoring the aforementioned obstacles and costs. Once you take the extra costs into account, the risk-adjusted return is actually worse.

Thanks for your input.

I did come across some funds which use this method to return a decent %. As they collect quite a big lump of money, they are able to let smaller players to join in. But at the same time, these funds seems to have a fairly high expenses ratio which shows when it comes to return comparing to writing the option myself (especially for £10k+).

From what I have learnt so far, the cost seems to be fixed in one way or another and it becomes more feasible to do it myself as money involves getting bigger (?) [but i guess as money involves getting larger, I'm taking more and more risk]

EDIT: reply to your edit: i think the other one you are talkign about is Insight Investment UK Equity Income Booster. I found both of them as i dig through articles on covered call. BTW, do you know what is the difference between covered call warranty and option? (are they entirely different animal?) Cheers, FB

**Churchill** · 9 March 2012, 08:34

Originally posted by Friday Blue View Post

correction, a fool with no money, just want to learn more

Be careful, and good luck.

**Friday Blue** · 9 March 2012, 08:47

Originally posted by zeitghost

Ah.

Nothing to do with BT or Virgin then.

LOL alot of those did pop up when i dig for more information.

Covered call option