Seeking Alpha

Matt Hylland

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  • Intel: Example Of Perpetual Covered Call For Monthly Income [View article]
    Great on paper, but you describe a perfect situation that just never seems to happen.

    Your numbers reflect INTC never going above 23 all year,
    but you are going to somehow be lucky enough to sell calls at ~23 every month? You are either going to get called away every month (and make no profit by selling those 100 shares at the price you bought them), or the stock will drop, to say $22, where then you will have to decide whether to: 1)sell Calls with a 22$ strike and risk actually losing money by getting them called away at $1 less than you paid, or 2) getting a lot less than $70 a month by continuing to write Calls with a $23 strike.

    On top of that, transaction costs are going to put a big dent into your return because it will not work out as you laid out, your stock will be called away at least several times a year if you are selling ATM calls every month.
    I know I don't have the most friendly options broker, but I would pay $7.50 per sale of a Covered call, $7.50 for buying the put, and $19.50 per time your stock gets called away.

    With my broker you are looking at $200 commissions, and that would be a pretty good scenario.

    I would argue that in a more realistic scenario, this strategy MAYBE nets you $400 dollars/year. At that point, buy and hold, collecting dividends and being able to actually benefit from INTC's stock rising seems like a equally decent (and easier) strategy.

    I am not trying to argue against this strategy so much as just saying if you think it will work out as some easy no risk way of netting $800 you are sadly mistaken.
    Nov 27 01:10 PM | 5 Likes Like |Link to Comment
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