Writing Covered Calls
Ken Trester, September 19, 2009
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Diversify Your Portfolio
The wise covered option writer will always have a good range of common stocks in his portfolio. This diversity greatly diminishes risk.
If you have only one position and the stock dives downward in price, your performance will suffer, as you would not be able to write options fast enough to protect the total downside risk.
To smooth out the peaks and troughs of the stocks that are being held in your portfolio, attempt to hold at least four positions in different industries -- this number has been academically proven to provide good diversity.
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