Griffin’s Covered Call Strategy invests for long-term total return with enhanced income and reduced volatility. We seek to invest in conservatively financed, large-capitalization, dividend paying stocks at reasonable prices and write covered calls against each position. Additionally, the Strategy will write calls, during most market environments, on 50% to 100% of the shares in the stock portfolio.
Stock positions are managed with a strict selection process that is focused on quality and valuation and we primarily buy stocks which have liquid calls and pay a dividend. The selection process is of utmost importance for the Covered Call Strategy as we seek to own a concentrated list of 30-35 stocks, each thoroughly vetted for downside risk.
Investment Strategy Advantages
The key advantages of the Strategy are increased income and reduced volatility. The writing of covered calls adds income in the short term. An added benefit of the writing of covered calls is the reduced volatility as a result of the partial hedge it provides. The Strategy can focus on investments for the long term while also taking a shorter term view on a stock through the sale of the appropriate call option.
- High Dividend Yield
- High Free Cash Flow Yield
- High Income from Calls
- Low Price to Earnings Ratio
Investment Strategy Risks
Market Decline: Risk associated with a large decline in the stock market. Since covered calls are not a true hedge, a large decline in the market will not be fully protected with this strategy.
Market Increase: Risk associated with a large increase in the stock market. Since covered calls are written for a specific maturity with a strike price for each stock, the strategy will not experience the same increase in value if there is a large increase in the market in a short period of time.
Concentration: Risk associated with holding a concentrated list of stocks, versus an index which may hold hundreds.