My second go around with retailer Fossil Group (FOSL) has taken some unexpected turns over the past week. That position, taken in November of 2019 at just below $8, sucked wind until September, when it began to gain steam. As a value investor, that is par for the course, I don't expect instant gratification, but the story (in my view) remained intact. FOSL was in better shape from a balance sheet perspective than the market was giving it credit for, but it would take some time to play out, that is if my presumption was in the ballpark.
Fast forward to last Tuesday, and with FOSL trading in the $12 range, I had a bright idea, one in hindsight that I should have ignored. That idea was to write some out-of-the-money March $15 calls on my FOSL position to generate some income. Even if the stock eclipsed $15, and was taken from me, that still meant that I had a double in the stock, and that was fine with me. However, what were the chances of such a move? Not great, I surmised, and the calls were expiring in about seven weeks.
That timing, however, could not have been worse. The following day, FOSL shares skyrocketed, all the way to $28.60 intraday, before closing at $23.66, evidently peripherally caught up in the GameStop (GME) short-covering "event".
You know how the math works in covered call situations. The value of my long position in the stock more than doubled, but that was more than offset by the rise in the calls that I'd written. I wrote the calls at about $1, when FOSL was trading at $12. With FOSL hitting $28.60 intraday on Tuesday, those formerly out-of-the-money calls eclipsed $14.
There's a lesson in here, somewhere, although I am not yet quite sure what it is. Perhaps it's that lightning can strike when you least expect it. Or, perhaps it is to shut and be happy that so far you've made good money on a trade. It could have been more, for sure. Absent that covered call position, if I'd been paying attention to FOSL last Tuesday, there's little doubt that I would have sold out of my long position at some point during that day.
Maybe it's also the acknowledgement (again), that I am value investor, a simpleton of sorts. Nothing fancy, no shorting, no naked option writes. Just the pursuit of cheap companies, and/or those that the markets appear to be mispricing.