Ep8 - They Lied to You! (Not) Why Covered Calls Work

Episode Summary:

In this eye-opening episode, Dan Passarelli challenges the common misconceptions surrounding covered calls. While most traders focus on “why” covered calls work, Dan flips the script and digs into the false narratives and misguided logic that lead investors astray.

Dan explains why some of the most popular justifications for trading covered calls are intellectually lazy—and how overlooking key factors like option pricing models and probability curves can lead to missed opportunities or unnecessary losses.

This episode lays the foundation for next week’s deeper dive into the true reason covered calls work.

Key Takeaways:

• You’ve been misled: Many reasons given for why covered calls "work" are based on flawed logic, not solid data.

• Probability ≠ Profit: High-probability trades don’t always equal good trades—context and pricing matter.

• The 3 flawed logics covered call traders often fall into:

  1. The premium isn’t worth the risk.

  2. Assignment means “losing money.”

  3. Covered calls always add value, so trade them blindly.

• What really matters: Understanding the options pricing model, probability curves, and the indifference point.

• Analogy alert: Dan compares covered calls to buying a car—price must reflect value or the deal isn’t worth it.

• Guest Insight: Henry Schwartz of Cboe Global Markets joins to share data-backed insights into how buy-write strategies are used and who’s trading them.

Featured Concepts:

• Log-normal distribution curves and probability modeling

• Indifference point explained with a $119/$122 call example

• Options pricing mechanics: volatility, time, interest rates

• How pricing impacts strategy effectiveness

Special Offer:

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Resources Mentioned:

• Wealth Building With Options on SubStack-https://wealthbuildingwithoptions.substack.com/
• MarketTaker.com – Learn more about Dan Passarelli and his work
• Options Disclosure Document (ODD) – Characteristics and Risks of Standardized Options (https://www.theocc.com/getmedia/a151a9ae-d784-4a15-bdeb-23a029f50b70/riskstoc.pdf)

• Connect with Henry Schwartz and Cboe Global Markets at cboe.com