Sanrith Descartes
Von Clippowicz
- 41,537
- 107,628
The millions are made when you are trading naked options (or on shares you dont actually own). If naked options are approved on your account, that means you could do the same trade but you dont actually own the shares. If they get called you would have to buy the at that price and eat a real loss.
Covered calls have limited downside because you have already "hedged" so to speak by purchasing the shares. The profit limitation is really the fact that you have to outlay the cash to purchase the shares. In this cash you already bought them as an investment which didnt go the way you hoped and this then becomes a revenue generator.
Also let me add another factor of risk you aren't seeing. You arent doing this on shares you are upside down on. If you do get exercised you are making a profit. When I was doing this on my XOM shares I was upside down like 30% at one point. So getting boned and losing the shares would have made that a real loss instead of a paper loss. But it did make me some money to cut into that paper loss I had over time.
