This segment discusses the concept of the “Poor Man's Covered Call” which is a way of simulating a covered call but which requires far less capital and is still eligible for an IRA account. This segment may inspire you to take advantage of options in a new way.
The benefits of a covered call versus a straight buy and hold strategy were previously discussed. We believe a covered call is a better choice because of the lowered cost basis. The problem for some is the capital requirements. This segment provides an alternative.
How a ““Poor Man's Covered Call” is established is explained. An example is provided in GLD. The profit given two different scenarios is displayed for a covered call and a “Poor Man's Covered Call” along with the return on capital, buying power reduction, etc. An alternate version of the “Poor Man's Covered Call” is also provided and the same information is shown for all three choices.
How volatility affects these is different. Tom and Tony explain that too. The general benefits of a covered call versus this “Poor Man's Covered Call” are weighed. Also discussed is the impact of making the strikes wider or narrower.
Watch this segment of “Strategies for Your IRA” with Tom Sosnoff and Tony Battista for the takeaways and to learn all about the ““Poor Man's Covered Call.
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