Thursday, April 14, 2011

Covered Call Strategy Explained

Selling call options against stocks you hold is a great way to generate additional income for your portfolio but there are several problems with executing such a strategy in individual accounts:

(1) Call options can only be sold in 100 share increments.
(2) You need to be approved for selling covered calls by your broker.
(3) Commissions often eat up most of the premium you receive when you sell only one call.

Fortunately for investors in the Wade Core Destination Fund, we are able to execute the covered call strategy within the fund which overcomes the above limitations. In fact, we have sold covered calls against 25% of the individual stocks held in the fund.

When selling a call option in the fund, we allow for a cushion to capture additional upside in a stock's price while collecting a premium from selling the call.

This is a clear example of one of the many advantages of investing in the Wade Core Destination Fund.

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