Ask Terry Questions Covered Calls

Covered Calls

By Terry Savage on August 12, 2016 | Investments

Hi Terry, Do you think selling covered calls on stocks is a viable growth option? I am interested in doing this in a portion of my ROTH IRA portfolio to avoid the complex tax consequences that result from them. My research seems to prove them to be beneficial, but only in a non-taxable situation. Would be nice to get your thoughts. Thanks!

Terry Says

When you sell a call on stock you own (covered calls) you receive a premium, which is considered income.  Inside an IRA that money would not be taxed until you make withdrawals from your IRA.   Of course, in writing calls you stand the risk that the stock price rises and the buyer of the call would "call" the stock away from you at the strike price.  So selling calls limits your upside gain to the amount of the call premium you receive above the strike price.  Here's an article that should give you a greater understanding.



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