I assume the majority on this forum has a “buy and hold” strategy. But has anyone tried to sell out of the money, short maturity, call options on their underlying holdings?
Say one has a long 1000 shares position on company/fund XYZ at an average price of 4.00 $/share (i.e. total amount invested to date $4k). Let’s assume current price is maybe lower, say around 3.50 $/share, and a 4.00$/share call option with maturity 20th of May will be 0.05-0.25 bid-offer. What if you can sell 1 call option for say 0.15 $/share, then you can receive 15$ in premium. If the option will expire worthless (say price will be <=4.00 $/share at maturity) then you cash 15$ and your long position remains unchanged. If on the other hand the option expires in the money (i.e. price at maturity is >4$/share) then you’ll have to sell 100 shares of XYZ to the option buyer at 4 $/share. You still realized the 15$ profit but you lose the opportunity to gain more by selling the 100 shares at higher market price. In this case, the adjusted portfolio will be 900 long shares @ same average price of 4$/share + 415$ in cash. This of course works if you have a view that on 20th of May the price for this share won’t settle higher than 4 $/share.
Any thoughts?