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What are the trade offs facing an investor who is considering writing a call option on an existing portfolio?
Wiki User
∙ 11y ago
It depends on why you're writing the call.
If you're doing it to make money by collecting the premium, and possibly the payment for the stock if the call is exercised, the tradeoff is you will make money but you might not make as much as you could have by selling the stock on the open market if the spot price of the stock when the option is exercised is higher than the strike price plus the premium.
If you're doing it to lock in your profits (or as part of a collar), there really isn't a tradeoff--whether the option is exercised or expires worthless, you still make money on the deal.
Wiki User
∙ 11y ago
Wiki User
∙ 11y agoYou balance the ability to lock in a profit by selling the stock after it passes a certain price, against the possibility you could get more by selling the stock on the open market.
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