Scholarly view of writing covered calls and of Novavax (NVAX), part 1

Recently, writing covered calls on (NVAX), our fearless, intrepid investor lost some $70,000.00 in her “fun” portfolio! How much fun can that be?

She had done well writing covered calls on NVAX every Monday, most of the time with the strike price just out-of-the-money, expiry date Friday of the same week. Morningstar now rates NVAX as undervalued at an 18% discount.

Remember that the risk of writing covered calls entirely comes from the risk connected to the underlying security.

Given the undervaluation, should she:

a.) continue with the covered call writing strategy or

b.) buy more NVAX and wait for the market to make up for the lost ground or

c.) do both?

Answer from 5i Research: