(MONEY Magazine) – Q Around the watercooler at work, people have been talking about "covered calls." Are covered calls a safe investment? Are they even something the average investor should be thinking about? --Dave Bailey, Orange, Conn.

ANSWER If you're asking whether you'll go broke from covered calls, the answer is no. The risk isn't that you'll lose big but that you'll miss the chance to win big.

A covered call is a type of option--a contract granting the right to buy or sell an investment at a certain price by a certain date. By selling a call option, you're promising to let someone buy a stock from you at a preset price--typically, higher than where the stock is when you sell the call. ("Covered" means that you own the stock.)

By selling a covered call--Schwab, among other brokers, makes it easy--you're betting that a stock will make modest gains at best. If the stock stays below the exercise price, you'll pocket a few dollars for making a promise you don't have to keep. In April, for example, when IBM was at $83.31, you could have sold a call for 100 shares exercisable at $85 and expiring in July for $220.

But if the stock jumps, you'll have to sell at the exercise price. Thus the problem with a covered call: It's a short-term wager that offers a modest payoff--and the chance to hate yourself for losing hold of a big winner just as it takes off.

Q I'm getting great yields investing in closed-end bond funds. Why aren't they more popular with income investors? --Manny Espinosa, Miami

ANSWER With outsize returns come outsize hazards.

Closed-end bond funds differ from conventional mutual funds in key ways. Share prices of closed-end funds aren't set by the net asset value, or NAV, of the fund's holdings. Rather, closed-end shares, traded like stocks, can sell for more or less than the bonds they represent. Further, most closed-end bond funds are leveraged: They invest with borrowed money.

That leverage can pay off when times are good. But when bond prices are falling, the NAV of a leveraged fund will drop faster than that of a non-leveraged one. And the fund may have trouble paying its big dividend. Any dividend cut will prompt a rush of selling, further depressing the share price.

Tom Herzfeld, a specialist in closed-end funds, recommends buying them only if they're trading at a discount to their peers and a greater-than-average discount to their NAVs. For more information, check out herzfeld.com and etfconnect.com.

Looking for some answers? Send us your questions about investing. E-mail answer_guy@moneymail.com.