When Covered Call Writing Backfires

Covered Calls: Marketed as Safe, But Risky in Reality

Covered call writing is often pitched by brokers as a conservative way to generate steady income from stock holdings. Investors are told it can reduce risk and provide reliable returns. But when markets move quickly, this strategy can unravel, leaving investors with devastating losses.

At ChapmanAlbin, we have spoken with clients who were placed into covered call programs by their brokers, only to find that the strategy collapsed when stock prices surged faster than options could be managed.

How Covered Call Losses Happen

In a covered call program, the investor owns stock and sells call options against it. Brokers often say this provides extra income while retaining ownership.

The reality:

• When stock prices rise sharply, the calls move deep into the money.
• To close the position, investors must buy back the calls at high cost, wiping out gains.
• Brokers may attempt to roll options to higher strike prices, but each roll means paying more to exit old contracts while receiving less for new ones.
• If stock is “called away,” the investor loses future upside and may face a large, unexpected taxable gain, especially if the stock had a low cost basis.

The end result is often tens or hundreds of thousands of dollars in lost profits. A strategy sold as “low risk” can leave investors with severe financial damage.

Your Rights as an Investor

If you were placed in a covered call program that backfired, you may have a valid claim to recover your losses through FINRA arbitration or litigation. These cases often involve substantial damages caused by unsuitable strategies or poor risk management by brokers.

We Represent Investors Nationwide

Our firm represents clients across the country in claims against brokers, advisors, and brokerage firms. We work on a contingency fee basis, meaning you pay nothing unless we recover money for you.

Contact us today for a free, confidential consultation to discuss your case. Do not let a broker’s failed “income strategy” deprive you of the full value of your investments.