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F OR THE MOST part, all investors employ the strategy of "buy and hold." Stocks are purchased with the anticipation that price will increase while being held. During the period of holding a particular stock invest- ment investors should consider the options strategy of selling covered calls against such positions. A call is the right to buy a specific stock at a specific price for a limited time. In exchange for this right, an investor will pay a premium to the seller. A covered call is when the seller of these rights already owns the underlying stock. The covered call strategy can help gener- ate an additional income stream when the outlook for a particular stock is positive. The best way to describe the potential is to give an example: Investor owns 1,000 shares of XYZ cur- rently trading at $75 per share. Investor sells a covered call for $0.50 per share at a price of $100. The option expires in two months. Investor earns a $500 premium for selling his rights to the stock. If XYZ stays below $100 through the expiration date, investor keeps the $500 and retains the 1,000 shares. If XYZ goes above $100 per share and the call is exercised, investor keeps the $500 and the $25 per share appreciation. Covered calls are best suited when any of the following conditions are present: + Long-term market outlook is positive + Market volatility is high + Concentrated stock positions + Possible downsides to selling covered calls include + Potential to generate large unwanted long-term capital gain + Risk of selling underlying stock If investors want to generate additional income, boost returns during periods of uncertainty or hedge against small downturns, a covered call strategy should be considered. Rich Weidrick is a CPA and a Principal of Weidrick Livesay & Company in Akron, Ohio. ■ Covered Calls Present Opportunity By Rich Weidrick, CPA/PFS