Madison/Claymore Covered Call Fund (MCN)

All Comments on MCN

  • commenter
    mlangner
    Nov 02 08:36 PM
    My Website
    Further Thoughts On Call-Writing Closed-end Funds (BEP, FFA, IGD, JPZ, JSN, MCN, NFJ) [view article]
    Geoff - I am struggling with your exact issue in my fund (and an ongoing battle with my administrator) - we have a strict price target methodology and occassionally sell out of the money covered calls at strikes at or above our price targets. If we get called in - no worries because we had that target anyway and would have been gone from the stock so the income is a bonus, if it expires worthless that's good too... Essentially we are trading gains in the stocks that we would never see for that income. If we get the underlying call on the stock wrong (not often but it happens) then selling the calls can be a hedge against a loss in that position...

    The problem I have is calculating the value of the position while its open. My admin wants to treat the two transactions as seperate - recording the value of the written call in the same fashion as you would account for a short position - marking the position to market at the end of the month... This has two problems for my NAV calcuation - first it gives investors that invest after I open a covered call position a "free ride" on risks that prior investors had taken when that position was taken (e.g,. the fund would still have the same absolute liability associated with that trade whether or not that later investor invested) and 2.) because we are betting that the stocks go up - we expect the value of the calls to increase (until they reach a point of time premium decay) in concert with the underlying stock position... so the covered call shows a phantom "loss" - artificially depressing the NAV of the fund..

    My goal is to find a proper way to value the premium in the interim between opening a position and when the call either expires, is called in or has to be bought back... no one has been able to give me a good answer on this - suggestions?     Reply
  • commenter
    Ross
    Greenspan
    Oct 23 06:51 PM
    My Website
    Exchange-Traded Funds and Closed-End Funds by Asset Class, Type and Provider [view article]
    This would be great if we could search by focus. Reply
  • commenter
    chamois16
    Aug 27 12:19 PM
    Assessing Closed-end Call Writing Funds (CEF: MCN) [view article]
    I believe the assumption about mandatory erosion of NAV is wrong. Call options are written on only a percentage of portfolio assets (usually 35-60%) and not all are exercised. While NAV growth in rising markets is truncated by the strategy, it is not eliminated.

    OEF had a problem with this strategy, because it was not professionally done using institutionally-traded OTC options, which have higher premiums. I think the better CEF in this category, which also use puts to alleviate downside risk, are showing, at least to date, to be a different breed of product. We won't know for sure until yearend when distributions are recharacterized.     Reply
  • commenter
    Jeffrey
    Grossman
    Jul 27 02:33 PM
    Van Kampen Offers an Alternative to Closed-End Covered Call Funds [view article]
    Claymore and Fiduciary Asset Management also have an open-end covered call mutual fund, trading since September 30, 2005. The ticker symbol(s) for the Claymore/Fiduciary Strategic Equity Fund are CFEAX (A Shares) and CFECX (C Shares). Reply
  • commenter
    Internet2k4
    Feb 16 01:47 PM
    Further Thoughts On Call-Writing Closed-end Funds (BEP, FFA, IGD, JPZ, JSN, MCN, NFJ) [view article]
    Thanks for the clarification - the problem of "fewer and fewer shares purchased at an ever increasing price" relates back to some followup discussion of Roger Nussbaum's January piece about MCN, as to whether such funds always operate by "cannibalizing&qu... the NAV of their assets.

    I wrote "This is the MCN blurb from ETF Connect: 'Its investment objectives are to provide a high level of current income and current gains and long-term capital appreciation. The Fund will pursue its investment objectives by investing in a portfolio consisting primarily of high qualitylarge capitalization common stocks that are in the view of the Fund’s Investment Manager selling at a reasonable price in relation to their long-term earnings growth rates. Under normal market conditions the Fund will invest at least 65% of its total assets in common stocks of large capitalization issuers that meet the Fund’s selection criteria.' I take it the fund is constantly replacing the underlying assets on something like a GARP basis." MCN, in particular, had gained NAV since inception.

    My question is whether it's right to presuppose the replacement of optioned assets will always or mainly be at a worse price. MCN fund managers clearly have latitude to actively manage the "asset pool" of the fund as well as call writing, e.g. decisions about "normal market conditions" and selection of large-cap stocks, so it's not a dumb mechanical operation. My concern is re over-generalizing about the CC model (and I certainly don't doubt there are underinformed financial advisors out there.)     Reply
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