Behavioral Aspects of the Design and Marketing of Financial Products
AbstractMany people believe the yield enhancement produced by covered options writing is the trading world's version of a free lunch. ...The writer of the call option agrees to sell a portion of the future upside appreciation of a long stock position; in exchange, the writer gains a one-time cash receipt of the option's premium. The only way the seller of the call option can gain from this deal is for a buyer to pay more than the option is worth consistently. However, common sense says this can't always happen. [R. Binnewies, "What's Wrong With Covered Writes," Futures, July 1992, P. 32.]
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Bibliographic InfoArticle provided by Financial Management Association in its journal Financial Management.
Volume (Year): 22 (1993)
Issue (Month): 2 (Summer)
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