I haven’t reviewed the ‘34 and ‘40 Acts on this specific issue, but I’m pretty certain they won’t give you the full story. My hunch is that most of the important stuff is found in SEC administrative opinions and rulings.

Sort of an interesting story about the covered call broker. He called at a time I was contemplating leaving my law firm to ramp up a fee-only investment advisory practice (which I have since done). I was interested to hear his sales pitch so I listened.

When he was done with his pitch I told him that it wouldn’t make sense for me. Then we started this strange cycle. He pushes harder, I tell him I get less interested the harder he pushes. He didn’t get the message. He became aggressive and even a little weird. I hung up.

Out of curiosity I bought a small amount of the stock he was pushing (not covered calls, just stock). I use Interactive Brokers and was able to make the purchase at a tiny fraction of the cost he would have charged me.

Within two months the shares lost 50%. They made a nice recovery a few months later and then bounced around the rest of 2009. I sold at a modest loss.

Did you take the covered call option?

Invest wisely