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Improving Covered Call Options

 

The main risk associated with covered call options is that the price of the underlying stock may fall significantly. There are strategies that will enable you to protect your position in regards to a falling underlying stock. Two of those strategies are buying a protective put and collar.

 

Buying a protective put limits a potential loss due to falling stock prices of the underlying. Nevertheless, buying a protective put would require you to pay premiums which would cut into the premiums you collected from selling covered call options.

 

 

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