My personal preference is to establish positions in relatively short-term (one month or less) Covered Calls. The primary reason for this is simply that the shorter the duration, the larger the potential annualized return-on-investment. This is true since the rate of time value decay of options increases the closer they get to the options expiration date. Short-duration positions also provide another benefit --they give us a more frequent opportunity to evaluate our original purchase decision and to determine if, given ongoing news about the company and the change in its price since our purchase, we would like to modify our position by either: (1) selling out of the position entirely if there has been negative news about the company or if we have found another company that we are more bullish on and need cash to invest in the new company; or (2) continuing the existing Covered Calls position near or on its original options expiration date and rolling out the same company to a future options expiration date.
I truly enjoy reading, researching, analyzing, and thinking about my investments. Since I've been retired (for several years now) and can devote more time to investing, I've noticed that I now tend to close out my positions in a company on (or even before) their original expiration date and then move on to a new position in a different company. This approach has improved my overall results, but I also recognize that most subscribers to this blog cannot devote anywhere near the same number of hours that I do to their investments.
Several subscribers to my blog have emailed me that they have a different approach to Covered Calls investing. Their preference is to buy-and-hold stocks for a longer period and to regularly sell Call options against these stocks to increase income compared with not utilizing Covered Calls but to instead simply hold only long positions in their selected stocks -- in other words the basic buy-and-hold strategy. I understand the need for such an approach and agree that this approach to Covered Calls is still preferable to the basic buy-and-hold stocks strategy. But I'm confident you will agree that holding stocks for a prolonged period makes stock selection decisions of paramount importance. In short, the companies selected should be ones with good quality characteristics but also with good future growth prospects and which are also trading at the time of purchase at an attractive valuation relative to the overall market and to their own historic valuation.
If you have a buy-and-hold Covered Calls investing approach, a few companies you might consider including in your analyses going into 2023 (in a variety of sectors) might include:
Communication Services -- Alphabet, Disney
Consumer Discretionary -- MGM Resorts International
Energy -- Canadian Natural Resources, EQT Corporation
Financial -- Bank of America
Healthcare -- CVS Health
Industrial -- Lockheed Martin
Information Technology -- Microsoft, Qualcomm
Materials -- Mosaic Co.
International -- iShares Large-Cap China ETF
As always, I welcome your emails at any time.
Best Wishes for a Happy and Prosperous New Year,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net
