Covered calls: The hidden risk

This course provides a clear, research-backed explanation of one of the most misunderstood investment strategies in the market — the covered call. It breaks down what covered calls are, how they function, and why they often seem more appealing than they truly are. Drawing on academic research and real-world performance data, the course shows how selling call options on owned stocks can generate short-term income, but also limit potential upside and affect risk-adjusted returns. You’ll explore the mathematics behind covered calls, including expected returns, volatility effects, and opportunity costs compared to holding a diversified portfolio. The course also examines behavioral biases that lead investors to favor this strategy despite its limitations, and why professional portfolio managers seldom rely on it for long-term success. Designed for both new and experienced investors, it offers a balanced view of the promises and pitfalls of option-based income strategies. By the end, you’ll understand why covered calls can be seen as a “devil’s bargain”—a tempting trade-off between short-term gain and long-term growth potential. For anyone committed to evidence-based investing, this course provides an essential, in-depth look at the realities behind covered call strategies.