Tom Czitron is a former portfolio manager with more than four decades of investment experience, particularly in fixed income and asset mix strategy. He is a former lead manager of Royal Bank of Canada’s main bond fund.
Early in my career, in the early 1980s, I was tasked with managing a covered call writing program for a relatively small and forgotten trust and mortgage company. The program was remarkably successful given the volatility and option premiums that existed at the time. The question today is if this strategy is a good idea in our current world.Simply stated, an investor owns stock or an index and sells a call against it.
This, in my view, is completely unsustainable as long-term valuations – such as the Shiller P/E ratio – are at levels only seen in 2008, 2000 , the late 1960s and 1929 . Now is probably a good time to consider covered call exchange-traded funds.