Covered calls are a less costly way to protect stocks because you receive money for the sale of the call,whereas you must pay money for a protective put.

Question

Quizplus · Accepted Answer

Covered calls generate income and can offer some downside protection, but they do not protect the underlying stock in the same way a protective put does. A protective put provides the right to sell the stock at a predetermined price, offering a direct hedge against a decline in stock value, whereas a covered call involves selling the right to buy your stock at a certain price, which can limit upside potential rather than offering protection against a decline.

Covered Calls Are a Less Costly Way to Protect Stocks