Are CEOs allowed to sell covered calls on stocks they own?

Thanks for the detailed answer.

Sig said:
, selling covered calls strongly suggests to the market that you think your company has little chance of significant short-term upside.
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or I think that the stock might be overvalued (a perfectly fine statement by a CEO) and want to protect the value of my holdings. After all CCs protect against a dip to South...

Now I see why this wouldn't be a good PR for Elon Musk (and he doesn't really need the extra money) but for a smaller company, I don't see if anyone would care much...

Or let's say I am a board member who is related to the majority of the controlling holders and they need me to keep my million shares to keep the family in control, but pretty much nobody knows me or care what I write against my stocks, as long as I am the owner of the stock...
 
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I keep coming back to this topic, when I read about Elon Musk not having cash or mortgaging his houses.

newwurldmn said:
It doesn't look good for a CEO to be selling upside in his stock while telling the world the stock is undervalued.
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Well, Elon a year or so ago acknowledged that the stock was way overvalued, so he wouldn't be lying to the public. Now he owns 38+ MM shares. Let's say he sells CCs on 1 MM shares, that is less than 3% exposure, but going out 50 bucks (currently $230 strike) with 1 month expiry, he could net 1.5 MM monthly, when his mortgages are like 800K monthly.

The point is, instead of mortgaging the houses with shares as collaterals and possibly selling a bunch of shares if the price drops, why not just sell CCs, way OTM with minimal chance of getting hit?
 
Mortgage the house with shares as collateral is a huge "skin in the game" indication of bullishness on the part of the insider. Selling covered calls is a huge "I don't think there's much chance this stock will go up any more" indication on the part of an insider. Any insider anywhere would be a moron to do the latter, but especially Elon when so much of the house of cards is built on a confidence game.
 
Pekelo said:
I am thinking here for a little additional income. Since they own the stock, if they pick a high enough strike price where the stock most likely wouldn't go (thus no danger of being called away), the premium is nice additional profit.

Is there any law or regulation that prevents them doing this? Even if they just do it using a smaller part of their holdings, (so their majority isn't in danger) that could be a nice little extra income...
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They do it all the time as long as they aren't in a post-IPO lockup period. So (I have no idea what he actually does, just picking a random example) if Jamie Dimon gets stock options that are exercised, then has shares, he might sell calls covered by the shares.
 
kj5159 said:
They do it all the time as long as they aren't in a post-IPO lockup period. So (I have no idea what he actually does, just picking a random example) if Jamie Dimon gets stock options that are exercised, then has shares, he might sell calls covered by the shares.
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I worked with the private client desk at my old firm a lot. The insiders who were overwriting were one of two flavors: they had sold their businesses to the parent organization and were paid in stock that they could not liquidate (often because it was hundreds of millions worth or they were sitting on substantial capital gains). The second group was a fourth generation heir to an old money dynasty (like a DuPont or prikzter). They could sell either because of family issues but wanted to monetize that capital. Often these were otc cash settled structures.
 
Sig said:
Selling covered calls is a huge "I don't think there's much chance this stock will go up any more" indication
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Going up 50 bucks a month is hugely unlikely for most stocks...
 
Sig said:
Mortgage the house with shares as collateral is a huge "skin in the game" indication of bullishness on the part of the insider. Selling covered calls is a huge "I don't think there's much chance this stock will go up any more" indication on the part of an insider. Any insider anywhere would be a moron to do the latter, but especially Elon when so much of the house of cards is built on a confidence game.
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It would be the fastest way for him to tank the stock. Even selling stock would be a less bearish signal.
 
Beyond any issue with the general public and the SEC, I think that a CEO would get a lot of heat from the board for doing anything that could be perceived as a bet against the company.
 
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