Writing Covered Calls involves selling call options on existing shares that you own. If the price of the share moves above the price that you wrote the call option at, and the owner of the option decides to exercise their right to buy your shares at the price you wrote it at, then you are obliged to sell your shares to them. However, if the price doesn't move above the price you wrote it at for the month, or the owner of the option doesn't decide to exercise their right to buy your shares, then you keep the premium they paid you for the option, still own your shares, and can continue to execute the same strategy each month for the entire time you own the shares.

As you continue to write covered calls on your same parcel of shares, your break even on the share price keeps falling, potentially making your investment in the shares not only more profitable, but also less risky. Eventually, it may be possible to fully recoup your initial investment in the shares through the accumulation of option premium income. In other words, over time you may be able to "pay off" your shares so that you still have the shares, but they no longer owe you anything.

Writing Covered Calls with CFDs

Trading Pursuits has pioneered Writing Covered Calls with CFDs. Using this strategy, the writer of the call options buys the CFDs rather than the shares, but otherwise the strategy works in much the same way as Covered Calls.

Through the use of CFDs, leverage is added to the strategy, potentially magnifying the income available from writing the covered call. However, some more risk can be introduced as well, so it is essential to be educated before you start.