Iron ore price, page-31843

@jhunt - sorry forgot to tag the reply.

Not really, I'd actually prefer the share price to keep increasing and do away with the option premium, think about it:

1. If the stock goes down, I just offset the capital depreciation with call premium - net result not much profit or even a loss.
2. If the stock goes sidways, that should be good depending on how the stock zig's & zag's - so thats a benefit.
3. If the stock goes up, I can just use the call premium collected to offset the value of the calls at months end and book a profit on the stock.

With regard to (3) assuming FMG consistently rose (can have jumps), FMG would need to go up more than 70% in a year to beat a well managed covered call strategy. In my opinion thats an extraordinary ask for FMG to do from this position and at this stage of the cycle which is why I have taken this approach.

Said differently, I would happily do away with the 70% option premium to get the 70% gain on my stock position, thats far more than a covered call writing strategy would make in a sideways market! Just like you prefer FMG to not be a one-trick pony, I prefer my portfolio to not be a one-trick pony, as FMG pays such high premium, this allows me to smooth my risk over several different scenerios and not be so exposed in any one direction.

On a technical note though, when FMG was down a few months ago I ceased placing covered calls and put in place a "stock repair strategy", which I posted on here at the time. This has left me with my stock positions and "free" long calls at $20.50 which I am now rolling forward. Those long calls, coupled with the call premium basically means FMG is going to have to find gold amongest it's iron ore to knock me out anytime soon - but there was luck involved in that.

Knowing this... just imagine the grin on my face when I get called a "shorter", heck you guys have just got stock, I've got stock and highly leveraged long calls!

Summary
From a P&L perspective a covered call strategy is likely to deliver it's best return when the stock goes up and hopefully that net result is just the ordinary stock price return plus or minus some discrepency. A covered call strategy may significantly outperform a buy & hold strategy in other market conditions, but outperformance is not the same as P&L.