Steve thanks for the reply. You've described just as I thought it worked.  I understand the risk but if sticking to stocks like AIG AXP etc,, the risk is minimal. It seems to be an interesting way to significantly increase the return on cash holdings.

                          joe

Yes, Joe, you are right.

It is also a good way to buy stocks at price levels that you want. For instance, in your example, if AIG is put to you, your cost basis would be 40 - 4.7, or 35.30 (plus commissions). So you can get the stock put to you and still have the price hold above your cost.

I sometimes do this when I am waiting for a good stock to get beaten down, and then I hope I get it! Then I sell covered calls on it and repeat the process if the stock gets called away.

Good luck. 

Steve

Joe Z 

I hope Morn* takes into account the option premium's historical volatilty because if it doesn't you may be overpaying and that will have as much impart on your return as anything. and if you are only writing options(rather than as part of a credit spread)be very carefull. but of course I don't know how much "homework" you done here.

good luck 

Jim