This post was originally published on SeekingAlpha.com.
Summary:
- Investors often sell call options against their long-term equity portfolios to gain additional income (covered call strategy).
- The analysis below demonstrates that call options are substantially underpriced in “oversold” markets.
- In such regimes, short call positions have mathematically expected loss and can be detrimental to the whole portfolio return.
- It worth suspending call selling is this condition until the market comes to its senses.
