With the Trump administration rattling the saber regarding North Korea, blasting Syria with Tomahawk missiles and dropping the “mother of all bombs” on Isis, it’s worth looking at stocks involving national defense. I also think the market is overvalued, however, so selling covered calls against these stocks is a way to straddle both bullish and bearish views.
When selling covered calls, you are selling the right for another investor to buy a stock you own at or above a certain strike price on or before a certain contract expiration date.
The risk with covered calls is that the stock you own gets called away if the stock rises past your strike price, which means you have potentially lost out on some gains.
You can let the stock be called away, buy back the call, or just buy back the stock. If you buy the call for less than you sold it for, you still come out ahead. The same is true if you buy more stock before expiration at the strike price plus whatever premium you received.