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[OP]
Deal Addict
Nov 9, 2013
4033 posts
3859 upvotes
Edmonton, AB

Covered Calls

There are a few equities I own that I will probably sell once they reach fair market value - CJR.B is an example of such an equity. Basically, I bought it because I thought it was undervalued and had ok short - medium term business prospects. I don't think CJR.B will exist 20-30 years from now however - my plan is to watch it's fundamentals while I think it's undervalued and continue to hold. If the fundamentals improve I may not decide to sell it at fair value; if the fundamentals don't improve I will sell it at fair value.

This got me thinking, should I write a covered call on something I plan on eventually selling at fair value, like CJR.B? I know I cap my upside (meaning if the fundamentals dramatically improve I will miss out on great future capital appreciation, but I suppose I can always just buy more later). However, if I plan to sell it at what I deem to be fair market value, can't I just write a covered call and collect a premium in the interim? I must admit I have no experience with anything like this. What do you guys think?
7 replies
Deal Fanatic
User avatar
Dec 14, 2010
6391 posts
7683 upvotes
If you are decided to sell at a certain price, no harm in doing selling covered call. Do it on a day that the stock is up for a nicer premium and keep collecting the income until the price closes above your strike price on expiration.

Rod
Deal Fanatic
Jun 27, 2007
5502 posts
1952 upvotes
1. Montreal exchange's liquidity is poor at best.
2. Volatility is underpriced because Canadians don't employ options in their strategies
3. Lowering cost basis by selling covered calls will improve your bottom line
4. Spreads on MOE are very wide with few exceptions

In addition, what you need is high volatility to get fair value. Rise in stock price is not enough...
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User avatar
Sep 23, 2014
1927 posts
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Toronto, ON
dlhunter wrote: 1. Montreal exchange's liquidity is poor at best.
2. Volatility is underpriced because Canadians don't employ options in their strategies
3. Lowering cost basis by selling covered calls will improve your bottom line
4. Spreads on MOE are very wide with few exceptions

In addition, what you need is high volatility to get fair value. Rise in stock price is not enough...
With the exception of VRX options loll
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Sr. Member
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Jan 23, 2011
593 posts
303 upvotes
Right now CJR.B is $12.67. Covered calls at $12 almost guarantees you will be assigned. Calls at $13 have little premium, unless it is months out or you have a large position. But yes I often write calls on stocks I don't want. It's like placing a limit sell order except you get paid for it.
Deal Addict
Sep 20, 2014
1159 posts
382 upvotes
Calgary, AB
Depends on how disciplined you want to be. If you have a set price target and and are okay with being in that ball park, then sure. No harm in doing so.

Probably a good thing since CJR.B is a value play for you. It helps keeping a tab on the upside and the downside and sticking to a disciplined strategy.
Deal Addict
Jan 20, 2016
2028 posts
1010 upvotes
Houston, TX
treva84 wrote: There are a few equities I own that I will probably sell once they reach fair market value - CJR.B is an example of such an equity. Basically, I bought it because I thought it was undervalued and had ok short - medium term business prospects. I don't think CJR.B will exist 20-30 years from now however - my plan is to watch it's fundamentals while I think it's undervalued and continue to hold. If the fundamentals improve I may not decide to sell it at fair value; if the fundamentals don't improve I will sell it at fair value.

This got me thinking, should I write a covered call on something I plan on eventually selling at fair value, like CJR.B? I know I cap my upside (meaning if the fundamentals dramatically improve I will miss out on great future capital appreciation, but I suppose I can always just buy more later). However, if I plan to sell it at what I deem to be fair market value, can't I just write a covered call and collect a premium in the interim? I must admit I have no experience with anything like this. What do you guys think?
Just curios what's wrong with CJR.B? :) Having it in my "rodbarc" (tm) DI portfolio and quite happy with dividends (and capital appreciation as well). It's not a BCE or ENB, but at least from dividend portion it looks good so far...
[OP]
Deal Addict
Nov 9, 2013
4033 posts
3859 upvotes
Edmonton, AB
asa1973 wrote: Just curios what's wrong with CJR.B? :) Having it in my "rodbarc" (tm) DI portfolio and quite happy with dividends (and capital appreciation as well). It's not a BCE or ENB, but at least from dividend portion it looks good so far...
Past and future negative earnings growth. It's a company in decline. They are trying to turn it around (focusing more on women's and children's content) but earnings are declining in the next few years. The cash flow is stable so the divvy probably won't be cut but it may not grow either. Declining fundamentals = declining long term investment.

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