Ken Fisher's Debunkery – BUNK 13: COVERED CALLS . . .GOTCHA COVERED

The name "covered calls" alone is comforting, Ken Fisher acknowledges - even if you don't know what it is! Who doesn't want to be covered? As in, "Hey, dude! Don't sweat it; we gotcha covered." Or, "If you're cold, get covered up." Just sounds right.

Technically, Ken Fisher explains covered calls combine a long stock position and a written call option. Many investors like these because they get a little bit of instant income from the premium received from selling the call. And there's not much risk from the call option. If the stock rises to the strike price before the expiration date, you just hand over the stock. That's why it's covered. Sounds safe! Income and seemingly low risk! How cool is that? That's how they are usually sold in the brokerage world.

At the same time, most folks who like covered calls and think they're safe will say with certainty that naked puts are risky. Covered is safe, but naked is crazy risky! Naked just sounds bad. "Hey, dude, you're hanging out there naked." Or, "I was warm until I got naked in the snow." But naked and covered don't mean what you may think or what most investors think. In this case, and counter to what every single covered call operator Ken Fisher has ever seen believes, they mean mathematically exactly the same thing - as Ken Fisher shows you.

See the reasoning behind Bunk 13 in Ken Fisher's Debunkery.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations.