Should I Sell a Covered Call for Christmas: Equinox Gold (EQX)

The S&P 500 was up 24% in 2023, and it is currently up over 27% for 2024. There is an awful lot of scuttlebutt out there that 2025 cannot possibly give another 20%+ year. This remains to be seen, however, assuming the consensus is correct and 2025 is going to provide returns of somewhere around 7% to 12% at the best case, but market participants have become accustomed to 20%+ returns, is there some way to bridge this gap?

There is an interesting tax mitigation opportunity that comes about this time of year. That is, market makers have made a market in many January 2026 options, and it is now December of 2024. While the value of an option per day is higher the shorter the duration, these long dated options can provide such a large premium, that it comes with a very comfortable Margin of Safety.

Just take for example, a covered call on Equinox Gold (EQX). I wrote about EQX on June 12th, and it is still my only pure gold miner:

Buying shares of EQX at $5.68, and selling a covered call at a strike price of $5.50 and an expiration of January 17th 2025 would yield about $0.47 per share; 110 of these contracts traded hands last Friday. Now this is a bit messy, because the call is in the money by $0.18, only $0.29 of the call premium is due to the time value. There are forty days until expiration, and $0.29 is a 5.1% return on $5.68. If only we could earn 5.1% every forty days, but in the course of normal volatility, the stock price is not likely to stay in place long enough for this strategy to generate an annualized 46.5% return.

But, selling a covered call on EQX with a strike of $5.50 and an expiration of January 16th 2026 yields $1.45. Still, it is in the money by $0.18, so only $1.27 is the time value, or about a 22.35% return.

If the stock price of EQX were to fall, if I had sold the short dated call and only taken $0.47 off the table, I would be underwater when EQX traded at $5.21, a price that EQX reached as recently as November 15th. But if I have taken $1.45 off the table with the longer dated call, EQX would have to fall to $4.23 before I were underwater, a price that EQX hasn’t seen since March 1st, two months before the first gold pour at the Greenstone mine. With the longer dated option, the value per day is smaller, but the Margin of Safety is much larger.

But there is another advantage of the longer dated call that is worth mentioning. If the option isn’t exercised early, I will realize the gain in January of 2026, which means that it would be a long term capital gain due to the holding period of longer than 12 months. Long term capital gains are taxed at a maximum of 20%, compared to short term capital gains taxed at the marginal income bracket, which can be as high as 37%, not including state taxes.

Furthermore, the tax bill would have to be paid in April of 2027, when the 2026 taxes are due. So I can get paid $1.45 today, and not pay the tax for around 856 days. Hopefully I can compound those returns in my 856 day head start.

There is yet another advantage to selling long dated covered calls over, for example, buying a bond of a similar maturity. When you sell covered calls, you get the cash immediately, and can reinvest it. When you buy a bond, you can’t reinvest the interest income until it arrives months later. So let’s work through a numerical example.

Suppose I bought 5,000 shares of EQX for $28,400, and immediately sold 50 covered calls for January 16th 2025, and received $7,250 in call premium. Well, I could immediately reinvest that money. Suppose I bought, 1,200 more shares of EQX for $6,816, and immediately sold 12 more covered calls for $1,740. Wanting to reinvest the $1,740 immediately as well, I could buy 300 more EQX for $1,704, and sell 3 covered calls for $435. Funnily enough, I now have $905 in cash left in the account to buy 100 more shares of EQX for $568 and I sell one final covered call for $145.

I started with $28,400, but now I have 6,600 shares of EQX, 66 short calls at strike price $5.50 expiring January 16th, 2025, and $482. Again, this does not use a margin loan, I am just reinvesting the premiums received from selling the options.

Calls can be exercised at any time, so it isn’t guaranteed that I will live a life of complete boredom for the next 402 days. But calls are most often assigned early when there is a dividend, and Equinox has at least three more mines to build out before they start returning capital to shareholders. The only reasonable prediction for getting called early would be if the share price of EQX rose so much that the remaining time value was negligible. Otherwise, fast forward to January 16th 2026.

Suppose that through devastating corporate mismanagement and falling gold prices, EQX were trading below $5.50 on January 16th 2026. Well, my 66 short call positions would expire worthless, and that original $0.18 by which the options were in the money suddenly become long term capital gains as well. I am now the proud owner of 6,600 shares of EQX, $482, and a long term capital gains tax of 20% on $9,570, or $1,914 due on April 15th of 2027. Here’s hoping I don’t live in California or the taxes are worse.

But suppose that EQX is trading at more than $5.50 a share on January 16th 2026. Well, in that case, the options are assigned, and I receive $36,300, the $482 that was left over from the beginning, and a long term capital gains tax of 20% on $8,382, or $1,676 due on April 15th of 2027. In this situation, I have $36,782 from my initial $28,400, a return of 29.5%, not the initial 22.35% I had originally quoted. This is because the gains from the additional 1,600 shares of EQX were added to the gains of my initial 5,000 shares. I still owe Uncle Sam $1,676 in taxes, but not for another 454 days. Ignoring the fact that I can try and grow my returns again before I pay the taxes, my current after tax return is 23.6%.

So looking forward to 2025, after the S&P compounded at 24% in 2023, 27% in 2024, and market participants are bracing themselves for a lackluster year ahead. As long as Ross Beaty does a basically competent job, and the gold commodity prices stay in a reasonable range, there is no reason I can’t generate a 23.6% return in 2025.

Of course I am not encouraging you to put your entire portfolio into a single stock, but this analysis can be repeated with any number of stocks that have characteristics that give confidence that they aren’t likely to crash over the next 400 days.

For EQX, there is the completion of the buildout of the Greenstone mine, which has an all-in-sustaining cost of around $900 an ounce. The management of Ross Beaty, who successfully built out Equinox Resources acquired by Hecla (HL), and Pan American Silver (PAAS). The gold buying by central banks all over the world. And the positive technical momentum of the stock itself.

There are risks to the gold price, central banks could all embrace cryptocurrencies, for example. Or the United States could become such a bastion of rule of law that the BRICS nations would want to save in US dollars instead of gold.

There are operational risks and jurisdictional risks. Trudeau’s government could punish miners for their alleged environmental impacts. EQX could mismanage their tribal relationships and suffer from a falling out with the First Nations. There could be work accidents and lawsuits, etc. But for the most part, predicting a January 16th 2026 share price for EQX above $5.50 is not the most outrageous prediction I have ever seen.

On my most recent YouTube video, I explored some of the possible long term capital gains covered calls and discussed whether or not I thought they were interesting, based mostly on the chances that the underlying stock has to outperform those option premiums in 2025.

This is not the only way to manage your portfolio, but it is a very interesting opportunity that only comes once a year around Christmas.