Limiting profitability to increase probability of success is one of the principles of professional trading. Take for example, every single spread that's bought and sold.

The good thing is, people have studied this. Because your argument is certainly plausible. What you leave off is that while you may "miss out" on upside, you also bank credit every month that you reinvest and compound.

I called making money in stocks a 50/50 bet, but it's not. It's biased toward the upside, a premium you're given to invest instead of lending (bonds). I've seen it calculated from 3-5%. So lets call the probability of profiting when you buy a share of stock 53%.

So let's talk about this study: * It's not part of the study but, we're in a 5 year bull market. So if your point about missing out on upside is true, it would certainly apply in this market.

* At the beginning of the year, purchase 100 shares of every company in the Dow * Each month sell the nearest OTM call, banking the credit received * Compare P&L with a uncovered long position.

By selling covered calls you reduced your basis by an average of 8% and increased your Probability of Profit to 73%.

Here is a link to another website that has a write-up about the study. I emailed the research team at TastyTrade to get a link to the study itself. I've seen it on their website but can't find it now. http://probabilitycapitalgroup.com/market-studies/using-cost...

And of course the wonderful thing is anybody curious can backtest this themselves. There's a lot of ways to do it, but the trading platform Think or Swim is free.

I'm not advocating what I don't understand, or what I don't have experience with personally. Honestly, i don't buy long stock very much, I prefer options strategies, but for example I'm long AAPL stock, and I've sold the $110 covered calls.

Addendum: I understand the resistance. Most peoples first (and only) experience with options is buying an OTM call or put. They almost always lose their money, think 'wow what a racket' and swear it off. Moreover a general distrust of market makers, hft, etc, and people stick with the status quo. But the reason I love trading with options is because I get to pick my own probability of profit.

You are right on one thing, though: The style of trading I do does not enjoy or rely on the "big win" of holding a big position that goes up huge. My style of trading is: 50 small positions in uncorrelated underlyings that give me a number of individual occurrences to let probabilities work in my favor -- to eliminate statistical variance.

Edit: To be totally clear, I do not advocate buying OTM calls and puts. I'm talking about taking the other side of that trade.