Most investors, if they think about options at all, consider covered call writing as an alternative income strategy. Collecting a premium for giving someone else the right to buy your stock at a set price over a given time span can be a source of cash. But it also can enable advisors to reduce risk in a concentrated portfolio while preventing the client from getting clobbered by taxes when selling.
“We’re trying to manage the tax bill. It’s not really just about the income,” says Gigi Turbow Marx, founder of Old Field Advisors in Mellville, N.Y. “The income is the carrot to get them to let go of the stock.”
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