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You are told that you can earn 6% a month by selling covered calls. Here is how the strategy works: each month you sell 1 month calls that have a premium equal to 6% of the current stock price (since calls in a variety of strikes, there will always be one strike that has a premium fairly close to this). If the stock is called away (the call is exercised) then you simply repurchase the stock and continue the call writing strategy. Will this strategy earn 6% per month? If not, what is the flaw in the reasoning?

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Category:- Basic Finance
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