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There are numerous strategies that traders and investors can employ to optimize their returns and mitigate risks.
One such potential strategy to consider is selling covered calls. Doing so can be particularly useful during times when call premium skew is elevated, and the market is showing signs of exhaustion due to extremes in bullish positioning, sentiment, and flows.
Right now happens to be one of those times, in my opinion, particularly within areas where gains have been concentrated (big tech and AI themes as examples), and single stock call skew is rising in those same areas and others.
Selling covered calls can be also beneficial for long-term stockholders who wish to realize lower capital gains liabilities, but still generate income during certain market conditions.
Understanding Covered Calls
A covered call strategy involves owning or buying shares of a stock or other asset and selling call options on the same asset. One collects the premium from selling the call options, which can provide a buffer against potential losses if the stock price falls.