Re: articles on covered call options
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But if I own a stock and have a target where I would like to sell it then why not write the call and (possibly) get some extra return?
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Suppose that you own a stock that trades at $X but you do not want to sell it lower than $Y.
If $X>=$Y, then sell it.
If $X<$Y, you view the stock is undervalued. Correspondingly, a call on the stock will be undervalued as well and you should not sell the call. The price of the call is dictated by the price of the stock, so if the market is undervaluing the stock, it will also be undervaluing the call (unless you have some very specific beliefs about the return distribution).
And I'll anticipate a response: It doesn't matter that you're selling a call with a strike price of $Z, which is greater than $Y - that call will still be underpriced and you should not be selling it if you believe the underlying stock is underpriced.
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