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Options Strategies

CCM's expertise in options strategies provide clients with a means to increase income, define risk, and hold concentrated positions over volatile events while minimizing cash outlay.

Covered Call Strategy for Concentrated Stock Positions

Background On The Covered Call Strategy

Generally, investors that own a widely held, publicly-traded security can choose to write a covered call against the position as long as an options market exists for that stock.

A call is a listed option that gives the buyer the right (without obligation) to buy the underlying shares at a stated “strike price” on or before the option’s maturity date.

The seller (“writer”) of a call receives a cash premium when the option is sold and has the obligation to sell shares at the strike price, at any time on or before maturity. Each premium generates cash flow for the seller.

When the seller owns the underlying security against which the option is written, the sale is a covered call write, which is considered a hedged transaction because the seller is “long” the security and “short” the option. If the security’s price exceeds the strike price and is called away, the covered writer can deliver the long position at little or no loss or out-of-pocket cost. However, the writer sacrifices any price gains above the strike price.

Implementation

Our sophisticated professionals have the specialized knowledge and experience to:

  • Know when options are attractively priced, relative to their value.
  • Choose the best strike prices for pursuing a personal investment objective. In this case to minimize the risk of being called away.
  • Trade or “roll” options before maturity, to maximize their “time decay” value.
  • Manage to avoid portfolio disruption and adverse tax consequences.

Real Time Indication of Income

Our team identifies short dated (three months out) call options with an out of the money strike price. A sale of these calls would generate approximately 1% in 2 months (6% annualized) without using capital. The stock has a relatively low risk of being called away.