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by quickthrowman
1653 days ago
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How do you take a “massive loss” on covered calls being exercised? They have defined risk, you give up some potential upside to collect premium. If they are exercised, the underlying is called away. Selling naked calls has a lot more risk, see the blowup of optionsellers.com on naked natural gas options |
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The loss comes from the opportunity cost of what you could have sold the underlying asset for. That might or might not be "massive", but the potential is definitely there. At the end of the day you're picking up pennies in front of a steamroller. Maybe it even has expected value greater or equal to the advertised APY, but failing to disclose that and/or pretending like it's guaranteed is deceptive. I'd be pissed if I put my money into some sort of "savings account" with 8% APY, then get wiped out next time there's a spike/dip, because it turned out that they were using it to write covered calls.