Help me critique this post by giving two advices about the content and additional information about the development as well two references to back up the content given.

When reading about covered calls, I was confused by some of the verbiage used in the article by Israelov and Nielsen (2014). They mention that a covered call is a long position in the security and then a short position in a call option for that same security. It makes sense that you would purchase a security and then potentially hedge your bet using options. However, the short position in a call implies that you are selling a call. Buying a call is the right but not obligation to purchase generally 100 shares of a security at a predetermined strike price before expiration.

When selling the right but not obligation to somebody else, the fundamentals of the "option" and obligation are no longer in your hands. Most options theories imply that there are only two points in time, when it is purchased and when it expires and that nobody would sell an option prior to expiration. However, this is not always true with American options. The confusion arises when you think of it as a simple, two-sided relationship where one person is buying the option and the other is selling it and it is held to expiration where it will only execute if the underlying price is at or above the strike price. However, when you sell the call option short, you also have the ability to buy it back to close out the position and early assignment can also happen if the purchaser of the call you shorted executes it early, your short call position shares can be assigned. This will result in you needing to provide the shares of the underlying stock to the purchaser for the strike price. In the case of a covered call, these would be the shares you purchased, which are intended to be the same number of shares as the options contract. Even though the risk of early assignment is low, the chance of an early spike in the security's value above the strike price seems to carry additional risk that is not there if you were simply holding the underlying shares. I was able to get my head wrapped around the concept when thinking of the majority of scenarios where the decrease in value or slight increase in value below the strike price would both result in a stronger gain or reduced loss.

Reference:

Israelov, R., & Nielsen, L. N. (2014). Covered call strategies: One fact and eight mythsLinks to an external site..Financial Analysts Journal,70(6), 23-31. https://doi.org/10.2469/faj.v70.n6.3