Covered calls are used by a wide range of investors and traders to enhance the returns of their portfolios. A covered call is a strategy whereby an investor writes (sells/shorts) a call option over shares they already own to a buyer (in this case The Standard Bank of South Africa Limited).
The call options are considered “covered”, because the underlying shares fully collateralise (cover) the obligation created from writing the calls. The investor receives an option premium (income) in return for selling the calls, which is immediately credited to their Online Share Trading (OST) account. This income boosts a portfolio’s cash flow and performance.
Covered calls are best suited to investors who hold shares in a company and:
- Would like to generate additional yield or cash flow into their portfolio
- Have a neutral to mildly bullish view on the share
- Are willing to sell their shares at or give up any upside above a predetermined share price. In return for foregoing potential upside in their shares, investors will receive cash in the form of option premium.
