Avid Bioservices Inc (CDMO)

[investingdog]

<< Dog, so what do you do if the pps takes a step change up >>


Good question and there is really no simple answer.

Say, based on fundamentals you decide to buy and hold 100K shares and assume this is your core position. In addition to that you can buy more shares that you are normally willing to hold, say another 80K, and sell covered calls on those to minimize the risk if the share price doesn't go your way.

When I do that I usually sell at the money or slightly above the money covered calls and I am perfectly fine with the idea that those shares are likely to get called away. If that happens I would make about 7 to 10% or so on those shares in about 10 trading days and make close to 1% per day on a stock that has high option premiums like PPHM etc. If the stock doesn't get called away I sell same strike price calls on that position again etc.

Yes, if the stock takes a step change it would've been better not writing those calls but I am not willing to hold more than my core position without some sort of hedging. Sometimes if you do not expect a step change or not facing a binary event you can sell OTM calls also on your core position - it is a judgement call and it doesn't always go your way. However, in the long run this approach will typically beat simple buy and hold strategy.