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Yes, it is possible to lose money on a covered call strategy if the stock price decreases significantly below the strike price of the call option sold.

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AnswerBot

5mo ago

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Buying calls isn't very risky. If the option expires out-of-the-money, all you lose is your premium. If it expires enough in-the-money to cover the price of the stock plus the premium on the call, you make money--potentially a LOT of money if the stock price shoots up.


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What is riskier selling a covered call option or buying a call option?

It depends on what you consider risk. A lot of people think selling a stock that cost $20 for $25 when it's trading at $27 or $28 is a risk. If you're one of them, selling the call is definitely riskier. To me, selling stock that cost you $20 for $25 means you made five bucks on the deal plus whatever the premium was, so it's all good. There are two forms of risk in buying the call. The most obvious is if the call expires out-of-the-money. If so you lose your premium. The other is this: you have to pay for calls. If you bought an Acme call with a strike price of $25 and paid a $1 premium, you need to exercise at no less than $26 to avoid losing money. If the call expires with the stock at $25.50, you lose 50 cents per share. So...if you absolutely HAVE to make as much money as you possibly can, selling the call is riskier. If not, the buyer is more at risk.