Topic: How To Invest

I read, with interest, your position on covered calls in the archives on your TSINetwork.ca website. I do have one very naive question, however. (I’m green at this, so that’s why I subscribed to your very sound advice column!) In any case, if one is holding Research in Motion stock at this time, would a covered call be a bad move—or should I just sell?

Article Excerpt

Covered call writing is where you sell a call option against a stock you currently own. You receive cash for selling the call, but you’re obligated to sell the stock at a fixed price (the strike price) if the holder of the call exercises the option. Brokers sometimes recommend covered call writing as a way for investors to earn higher returns from their stock holdings. In our view, however, covered call writing (or any involvement with stock option investing) tends to act like an unintended profit filter. It can occasionally make you money, and it may cut your risk. But the net long-term effect is to filter out a big part of the profit you hoped to wring out of your investments. This could happen with Research in Motion, $14.42, symbol RIM on Toronto (Shares outstanding: 524.2 million; Market cap: $7.6 billion; www.rim.com). The company’s shares remain volatile, but they could suddenly shoot up on any positive news. If you sell a call…