Episode 65: Covered Calls and Protective Puts (The Price of Protection)

Hey! I'd love to hear your thoughts, send me a voice note.Episode SummaryThis episode dissects the two options strategies most commonly utilized by retail investors: covered calls and protective puts. We unpack the mechanics of covered calls—where you own the underlying stock and sell a call option against it to collect immediate premium cash in exchange for capping your maximum potential upside. We expose the reality behind the highly popular Canadian covered call funds, which are heavily marketed as providing "enhanced income" or high monthly distributions. In truth, these funds are systematically selling away your best long-term growth outcomes to buffer flat or falling periods, causing them to structurally lag during rising markets.We contrast this with protective puts, which function as literal investment insurance where you pay an upfront premium to establish a hard price floor below which further market declines cannot hurt you. We explain why buying protective puts repeatedly acts as a continuous, expensive drag on your portfolio's returns in normal or rising markets. Finally, we explore the collar strategy—which combines both positions to establish a locked floor and ceiling—and warn about the tax implications of covered call assignment, which triggers an unscheduled taxable disposition in non-registered accounts.Disclaimer This show provides educational content and does not constitute financial, legal, or tax advice. Speakers are not registered to advise you on securities; please consult a licensed professional or accountant for your personal situation.