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When you sell to open a covered call position, "the buyer" gives you the cash for the right to "call away" your original stock shares in the contract's time frame and at the contract's set "strike price". Said another way, the call buyer is paying you the current market cash price for this right (but not the obligation) to buy your stock shares at that set strike price anytime during the contract's time frame. Obviously the call buyer believes the stock price is going up.

We believe the stock is going down. We will hold the cash in our account as the contract time period passes. If we are correct and the stock price continues to go down, then the market value of the contract also goes down. If the price continues down, we would normally close the position, buying the contract back at a lower price. Once the contract position is closed then you can do what you want with the new cash (or at least what the account allows).

Over time, the Risk/Reward Ratios have statistically favored the Covered Call Sellers. The risk is higher for the Call Buyer. Over a two to four year period (when the original investment is moving up and moving down, but trending upward through its normal Value Cycle) there could be as many as 4 to 8 covered call selling opportunities. The theoretical potential that we are demonstrating is as follows: we use the Eagle Investor attempting to gain the majority of the original investment's value cycle appreciation, plus we use the Fox Cash Creator attempting to create new cash flow from these cover call selling opportunities. Obviously mistakes will be made and we will never capture the full theoretical value. Looking back in time, how many covered call opportunities can you count looking at the 5 year chart on Anheuser-Busch (BUD)? Look at Exxon Mobile Corp (XOM) and make your count again.

Think back, remember when we explained about opportunity risk in using covered calls? When you own some stocks, this opportunity risk can turn out to be significant. For example, if you had a covered call on Qualcomm Incorporated (QCOM) in the 4th quarter of 1999, you would have missed a sizeable gain in the stock.

A covered call is the only option technique that is approved to be used in tax deferred accounts. Covered calls should only be used when you already have a position in the stock of 100 shares or more. For every round lot of 100 shares you can sell 1 contract. Never sell a call position without owning the underlying investment. The covered calls strategy can work in most market conditions. It is most effective when you expect the Macro Stock Market Trend to be moving sideways. Look at this 102 year chart on the Dow Jones Industrial Average (1900-2002) . What are your expectations for the Stock Market for the next 10 to 15 years?