Anniek,
There are some crucial consideration which I do not think that you have made in evaluating a covered call strategy for yourself. Selling covered calls is a taxable event, that is you must report it as income on your taxes. Furthermore, in the event that your calls get exercised, there will likely be a very substantial tax burden placed on the longterm capital gains. The longer that you have owned the stock and the larger that your unrealized capital gains are, the less appealing covered call strategies should seem. Net that $10,000 of taxes and then further consider the capital gains tax that you would face on the shares if you were called. Beyond that, you must also realize that after you have been called of 10,000 shares at $35, you now have $350,000, less taxes, that you will probably want to reinvest and may have to pay substantially higher prices to do.
My advice, if you are looking to generate some additional income in your investment account, is to consider opening up a margin account and purchasing shares which are specifically intended for covered call writing. This will protect your long term capital gains from being taxed and can generate some additional returns. But remember, these additional returns from margined stock also increases risk.
Best of luck,
Wayde. |
