- The asset goes up in price
- The asset price stays the same
- The asset price drops a relatively small amount
One of the catches (and there are always at least one), is that the investor gives up some upside.
The word “rules” is a bit harsh, but “guidelines” is too soft. Maximum premium is around ATM Buy-writes held to expiration have delta of 0 above the strike, -1 below the strike Don’t mess around too much with bid/ask spreads Don’t use credit / debit orders for covered call transactions unless it is a very slow moving market or if the spreads are unreasonable. Otherwise …