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If you’ve been in the investing world for a while, you’ve probably heard about — and dabbled with — writing covered call options on stocks.

When you write a covered call against a stock you own, you sell the right to purchase your shares for a specified strike price at or before a specified future date. You collect a premium — the price of the option — for giving up this right.

And why? The main reason is to generate some current income. Those returns can be juicy — 2% to 3% per month or more when things work out just right.

My point here isn’t to give a full course on covered call writing; there are plenty of resources out there.

Instead, here’s my issue. Covered call writing on individual stocks can be tricky. Getting good returns means using more volatile stocks, since option premiums are tied to volatility.

This is where a lot of investors run into trouble. Moreover, most of us just don’t have the time or bandwidth, or don’t want to put much risk capital into play this way. That’s where covered call funds come in.

Covered call writing can be one of those areas where professional help and diversification make a lot of sense. Yet, somewhat to my surprise, only a few funds specialize in covered call strategies, and most toil in relative obscurity to the individual investor. So I want to help show the way.

Before going further, here’s the main drawing card: Most of these funds pay a steady 8%-10% return, usually as a quarterly dividend. In today’s environment of 4.5% money market yields and 5%-6% bond returns, that’s not bad.

Most covered call funds are so-called closed-end funds, which sell a fixed number of shares that trade on an open market.

http://www.thestreet.com/video/personalfinance/10341478.html for the video version of this story from Jennifer Openshaw.

For this strategy, closed-end funds work best, because the fund manager can fully deploy assets and not worry about redemptions. And investors don’t have to worry about sales charges, though they might pay a small premium to the fund’s net asset value.

Here’s a look at some of the choices:

- Index covered call closed-end funds

Funds sell covered calls not against stocks but against the S&P 500 index. The result is good income with downside risk matching overall market risk. The S&P 500 Covered Call Fund (BEP) is the largest player.

- Stock covered call closed-end funds

These funds sell calls against individual securities owned in the portfolio. These securities can cover the market or target specific sectors, and some blend in international stocks. The portfolio percentage put into play with covered calls may vary as well. These pay somewhat more than index covered call funds.

The biggest players include Madison Claymore Covered Call Fund (MCN) , First Trust Fiduciary Asset Management Covered Call Fund (FFA) and the ING Global Equity and Premium Opportunity Fund (IGD) , which adds an international flavor.

- Open-ended funds

As ordinary mutual funds, in the face of competition, seek higher returns, covered call writing is coming back into vogue. Last summer’s launch of the Van Kampen Equity Premium Income Fund (VEPAX) may be one of the purer plays in this space, but the 5.75% upfront load gives me pause.

I believe closed-end funds are worth a look, especially for a portion of a well-diversified portfolio. During my research, I was particularly drawn to the Madison Claymore Covered Call Fund, which offered by far the most consumer-friendly online information and a very helpful toll-free information line.

As I investigated Madison Claymore, it dawned on me that if funds aren’t quite your thing, you could even play a little “follow the leader” and mimic some of their strategies and holdings.

Madison Claymore gives an up-to-date list of its top 10 holdings. You could buy Biogen Idec (BIIB) for $49.50 and write a month-out covered $50 call for $1.65 — an implied 4% monthly return — or do a similar move for Best Buy (BBY) or eBay (EBAY) . You’d take on the risk of owning the individual stock, but at least you’d have the comfort of knowing the pros are doing something similar.

However you decide to approach it, enhancing current portfolio income with covered calls is a relatively low-risk strategy if done carefully. Covered call funds are a good way to get started.

It seems like the Innerworth newsletter I said was dead yesterday actually continues but in another form. The main contributor, Michael Shopshire will be contributing his work three times a week to http://www.marketwise.com. It is now called the Marketwise Mental Edge Newsletter and from what I can tell can only be accessed by going to the MarketBlog Central section of the Marketwise homepage.

Exchange-traded fund investors got three more ways to play the currency markets earlier this month.

On Feb. 13, the CurrencyShares Japanese Yen Trust (FXY) was issued for trading. Then on Feb. 20, the PowerShares DB US Dollar Index Bullish Fund (UUP ) and the PowerShares DB US Dollar Index Bearish Fund (UDN) launched.

The CurrencyShares Japanese Yen Trust is managed by Rydex Investments, and it rounds out Rydex’s portfolio of currency ETFs including the CurrencyShares Euro Trust (FXE) , the CurrencyShares Australian Dollar Trust (FXA) , the CurrencyShares British Pound Sterling Trust (FXB) , the CurrencyShares Canadian Dollar Trust (FXC) , CurrencyShares Mexican Peso Trust (FXM) , the CurrencyShares Swedish Krona (FXS) and the CurrencyShares Swiss Franc (FXF) . The funds measure the value of the foreign currencies in U.S. dollars.

When a foreign currency strengthens, it takes more U.S. dollars to buy one unit of that currency. So if you believe that the U.S. dollar will weaken against one these currencies, buying the ETF for that currency gives you protection from a fall in the value of the U.S. dollar. Of course, if the dollar gains in value, these ETFs are designed to fall.

If you have the notion that the U.S. dollar is going to rise in value, but are unsure as to which foreign currency to bet against, then take a look at the PowerShares DB US Dollar Index Bullish Fund (UUP) offered by Deutsche Bank and PowerShares Capital Management. This ETF holds a basket of the six currencies that make up the dollar index: euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

In the last few days, the dollar has weakened, so investors were better off holding the PowerShares DB US Dollar Index Bearish Fund (UDN) that goes up when the dollar sinks. Chalk that up to currency traders agreeing with former Fed Chairman Alan Greenspan’s comments on excessive U.S. debt and the potential for a U.S. recession by year-end.

Two sector ETFs also debuted earlier this month: the First Trust Nasdaq-100 Ex-Technology Sector Index Fund (QQXT) and the First Trust Nasdaq Clean Edge U.S. Liquid Series Index Fund (QCLN) .

The Nasdaq Clean Edge U.S. Liquid Series Index Fund tracks 45 clean energy stocks with a sector breakdown of 43.9% semiconductors, 19.6% alternative energy, 13.2% electrical components and equipment, 7.8% electronics, 4.3% manufacturing and 3.9% machine tools.

The fund’s largest holdings include MEMC Electronics (WFR) , Linear Technology (LLTC) and Suntech Power (STP) . Al Gore winning an Oscar for An Inconvenient Truth is a sign that a global focus on clean energy improves the outlook for these types of stocks.

And for the few remaining Luddites, the Nasdaq-100 Ex-Technology Sector Index Fund purports to follow all the members of the Nasdaq 100 that are not classified as technology stocks. On top of the 13.7% retail and 10.4% media concentrations, the fund actually does hold high-tech industries, including 10.4% internet, 9.0% biotechnology, 8.7% pharmaceuticals and 7.8% telecommunications.

Holdings such as Level 3 Communications (LVLT) , EchoStar (DISH) and Garmin (GRMN) seem pretty high-tech to me. Microsoft (MSFT) was correctly excluded, but another software company, Electronic Arts (ERTS) , remains in the basket. Some investment concepts I just don’t get.

SOCIAL work staff in Midlothian claim they warned management a teenager in care was at risk of committing sex abuse, but their concerns were ignored and the boy has since been in court for a string of sex offences.

The claim, made in an e-mail to MSP Christine Grahame, comes as council chiefs are reeling from a damning report into the authority’s child protection services.

Ms Grahame said she had been contacted by children’s services staff complaining their efforts to highlight failings in the service had been dismissed out of hand by social work management.

And Unison, the union representing Midlothian social work staff, said it had lodged a grievance nearly two years ago, raising concerns about staff shortages.

One e-mail sent to Ms Grahame said: “You might also want to look at the case of a local young man who recently appeared before court on a string of sexual offences. This young man was recently in care and identified as being at risk of perpetrating sexual abuse but again senior managers did nothing to address this.”

A highly critical report by HM Inspectorate of Education, published yesterday, said youngsters in the district had been left in high-risk situations and others in care were not seen regularly by staff.

To read this story in full, pick up a copy of today’s Evening News

Related topic

- http://news.scotsman.com/topics.cfm?tid=1514
http://news.scotsman.com/topics.cfm?tid=1514

Cable customers are set to lose hit shows such as Lost, 24 and the Simpsons from midnight tonight.

Sky and Virgin Media have been locked in a war of words today as the deadline approaches to agree a deal.

The rival companies are ostensibly arguing over the price that Virgin Media pays to Sky for the right to carry its basic channels such as Sky One, Sky News and Sky Sports News.

But behind this argument lies Virgin Media’s newfound strength in its battle with its satellite rival following last year’s merger of cable giants NTL and Telewest, the acquisition of Virgin Mobile and the company’s rebranding as Virgin Media earlier this month.

Virgin was also angered when Sky bought a 17.9% stake in ITV, blocking a potential takeover and the creation of a media giant to take on Sky.

Sky said today it wanted to sell its channels directly to Virgin customers if it could not agree a deal through the cable network.

“We believe absolutely in the quality of our channels and their strong appeal to customers, but we’ve offered a simple alternative if Virgin really doesn’t think they’re worth 3p per customer per day,” said a Sky spokesman.

“At no cost or risk to Virgin, we’ll retail our basic channels directly to cable customers on the Virgin Media network to ensure that no one misses out on the TV they enjoy.”

But Virgin boss Steve Burch has rebuffed this suggestion, arguing that because it controls access to its cable network Sky will have to deal with them.

“It’s a bold-faced attempt to take our network from us. It’s a ludicrous proposal and they know it’s ludicrous. We are not going to let them steal our network, they’re far more dominant than they should be. It’s a ridiculous request.

“It’s classic Sky to hijack our network, to continue to have not only their dominance on their network but to take our network as well. It’s very misleading, an attempt to distract and confuse people.”

He called on Sky to do a deal today or to enter into arbitration, during which Virgin would keep Sky’s channels on air, but Sky has rejected this proposal.

“Trying to involve a third party and unpick the agreement for Virgin’s channels on the Sky platform would be an unnecessary delay and distraction,” said Sky in a statement. “Our debate with Virgin comes down to how strongly you believe in the value of Sky’s basic channels.”

As part of the arbitration offer, Virgin had wanted to renegotiate the unfavourable deal it previously made with Sky over the carriage of channels such as Living TV, Bravo and Trouble.

The row does not affect any of Sky’s premium sport and movie channels.

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