The following excerpt is from an article entitled Scudder Writes Covered Calls on S&P 500, in the
Question:
The following excerpt is from an article entitled "Scudder Writes Covered Calls on S&P 500," in the july 13, 1992, issue of Derivatives Week, P. 7:Scudder, Stevens & Clark writes covered calls on the S&P500 Index to enhance the returns of some of its equity portfolios, according to Harry Hitch, principal at Scudder. Hitch, who advises Scudder's equity portfolio managers on derivatives use, said that the S&P500 has been in a trading range since the beginning of the year, making it a good candidate for covered call writing. Half of the index is made up of growth stocks, a group that Scudder sees as overbought, whereas the other half is probably increasing in price. The combination of one half appreciating with the other half depreciating creates the range, rather than a decided one-way movement.The goal is to write calls at the top of the trading range, take the premium and wait for the options to expire worthless......Typically, Scudder take 1,000 contract positions, worth around $42 million.
Explain the risks and rewards of the strategy dicussed in this expert.