The Covered Call Strategy That Keeps Paying

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Tobias discussed The Covered Call Strategy That Keeps Paying. Here’s an excerpt from the episode:

We had another trade where we did a covered call. So we bought 100 shares at 1027. This was on May 5th.

We sold the $11 call for 35 cents a share. And that call expired worthless. So we banked $35 on June 18th.

And the trade that went out to subscribers today is we sold the next $11 call, which expires in 60 days for 40 cents a share. And so the two covered calls that we’ll have sold on these Blue Owl shares will have collected 75 cents of premium. And that’s why it lowers the cost basis from 1027 to an effective basis of 952.

Right now the shares are at 953. So even though the stock’s gone down by us using these strategies, we’ve reduced our cost basis to a level where we’re basically break even and Blue Owl pays like a 9% dividend. So that dividend, I believe there is a payment that comes in within this next option price.

I don’t think there was one on the first option. I think it’s about to go out pretty soon. So that’ll actually reduce our cost basis further.

And once again, if that option expires, if our next $11 call expires worthless, then we can do the process again. I do think Blue Owl is really undervalued long term. And so I do think it’ll rallies far beyond 11.

But you don’t have to do this on every share that you own. So if you own a thousand shares of Blue Owl and you want to reduce your risk and hedge a little bit, maybe you do this on 500 of the shares. But another very effective tool.