I get a lot of mail regarding a strategy I’ve outlined before, in which you sell covered calls against stocks I consider to be “forever hold” stocks. These are stocks I believe are intrinsic to both the American and the global human experience, representing companies that are global leaders in businesses that human beings simply cannot live without. They’ll be around for the next hundred years, which makes me comfortable not only holding, but passing onto my heirs.
The theory here is that if I’m willing to hold these stocks forever anyway, selling calls against them is going to provide me additional upside. I might miss out on large moves … but then, any large move that I might miss out on is likely to be made up for (or more) by repeatedly selling calls.
I suggest selling calls against at least half your position in case you are worried about missing on big upside moves. However, these stocks tend not to make huge moves, even after reporting earnings.
If these stocks get called away, just buy them back. And they will get called away, but let’s say they only get called back half the time — some of those times, you’ll be able to buy those shares back at a price less than you received in premium, cutting your upside loss.
Now, onto the three covered calls.