Covered Call Writing Programs: When “Safe Income” Becomes Broker Fraud
What Is a Covered Call Writing Program? A covered call writing program is an options-based strategy in which a broker sells call options against stocks held in a client’s brokerage account, collecting premium income in exchange for capping the stock’s upside potential. Brokers at firms such as Merrill Lynch, Morgan Stanley, UBS, Edward Jones, and Raymond James routinely recommend these programs to retirees and conservative investors as a way to generate “safe income” from existing stock holdings. The mechanics are straightforward. The investor owns shares of a stock—typically in lots of 100—and the broker writes (sells) a call option against those shares. The buyer of the call pays a premium, which the investor keeps. In return, the investor agrees to sell the stock at a set strike price if the option is exercised before expiration.
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