Writing (selling) call options is occasionally referred to as “picking up nickels in front of a bulldozer”. Observation of the options markets tells us that most call options expire worthless (i.e. never payoff to the option owner). If sellers of calls rarely take the loss of the payoff to the buyer, why such a less than charitable description of the action of selling calls? In other words, what is the “bulldozer” barreling down on the call sellers? What’s the big risk? Are call option sellers capitalizing unfairly on the optimism of the call buyers? The selling of covered calls, combining a long position in the underlying and a short position in the call, is a popular investment strategy. What market conditions would be most favorable to the seller of a covered call? That is, what price behavior of the underlying would prove most profitable to the call seller?
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