US Option Overwriting Screen: Overwriting while capturing substantial potential upside

Research evidence excerpt

US Option Overwriting Screen: Overwriting while capturing substantial potential upside

Options Risk Statement

Potential Risk at Expiry & Options Limited Duration Risk

Unlike owning or shorting a stock, employing any listed options strategy is by

definition governed by a finite duration. The most severe risks associated with

general options trading are total loss of capital invested and

delivery/assignment risk... all of which can occur in a short period.

Investor suitability

The use of standardized options and other related derivatives instruments are

considered unsuitable for many investors. Investors wishing to partake in these

strategies are encouraged to become familiar with the "Characteristics and Risks

of Standardized Options" (an OCC authored white paper on options risks). U.S.

investors should consult with a FINRA Registered Options Principal.

For detailed information regarding the risks involved with investing in listed

options: http://www.theocc.com/about/publications/character-risks.jsp

Specific risks to covered call strategies: If the stock finishes below the noted

“breakeven point” at expiry, the investor’s position will be valued lower; however, any

discount in value will be partially offset by option premium received. If the stock

finishes above the noted strike on expiry, the investor may have their underlying shares

called-away (sold); however, realizing a profitable capped return equaling the noted call-

away return.

• When the underlying stock price meaningfully lies above the short call strike

price, the investor is at risk of having their underlying shares called-away (sold).

Holders can employ the following tactics to avoid call-away:

Roll-out (Roll Forward): Buy back the calls that were originally sold and sell