Naked puts are a lot better then covered calls. Same risk but more edge. Personally, I don't like to do either one.
I have written both covered calls and puts. I prefer puts though. My "sell" call portfolio has done quite well overall. I keep them all short term. 60 days is my maximum term. The average term is about 25 days though.
Pricing of options is as efficient as shares and over time I don't think you make any more (or lose any less) than by owning the underlying. In addition you have transaction charges and possible losses on the bid/offer spread if you are selling options with low liquidity. It might have benefits in terms of tax efficiency.
As others have pointed out, writing naked puts has the same risk profile as a covered call with a superior ROI. Also, writing naked puts is a reasonable way to establish an attractive entry price on a stock that you want to own. At the same time, covered writes can have some benefits. First, a systematic covered call approach has been shown to reduce the volatility of outright stock ownership while enhancing returns somewhat. However, the latter applies only to range bound markets, as the resulting limitation on upside gains will outweigh the income derived from writing the calls in a strongly trending market. Lastly, under the new tax rules, be careful to only use "qualified covered calls", as the use of those deemed "non-qualified" will eliminate the dividend tax reduction, subjecting any dividends received on the underlying to ordinary income tax. It gets a bit complicated, and you may want to ask your accountant, but I believe as long as you focus on writing ATM or OTM calls, you should be okay.
to me , it seems that writing covered calls would be great with a fat account. with a FAT account you could take the conservative approach and write ITM's for a nice monthly income. the premiums seem pretty low right now, not good for the small account guy like myself.
covered call writing allows you to give away your upside and take all the downside risk for a few pennies income. not a good play in this low volitility enviroment.
Just make sure you never write a covered call on a stock that is going ex-dividend or you will be assigned the stock.
This is exactly how I look at them too. You take away 100% of the upside of the stock and still have 98% of the downside. Not a very good risk to reward ratio. Covered called were a strategy created in the 80's to give brokers a way to get commissions out of clients who would let their portfolios sit and not generate any trades.
Are you sure about that? I own stock that is going ex-dividend, and I am selling someone the right to buy the stock from me. How is it I have obligated myself to be assigned stock? Perhaps you meant write an ATM naked put.