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In the endless search for yield, a Covered-Call Strategy can be an effective tool to supplement portfolio performance. In addition to finding returns from call premium, I'll try to incorporate higher quality dividend stocks for a little something extra. The guidelines for the covered-call strategy are:

  • Generate more than 7% per year from the calls and dividends combined is the overall goal.
  • Call should be at least 8% out of the money, to avoid being called away.
  • Targeted expirations will be within 4 months. Optimally calls will be written on the same underlying 3-4 times per year.
  • Buying back calls to close before expirations takes place will be taken into account; Yields are calculated Bid-$0.05.

The picks should be looked upon as yield generators to supplement longer-term equity holdings. The above are only guidelines, however, not rules. Before utilizing the strategy, make sure to study it and know the potential hick-ups that may occur.

Annualized Call Yield performance can be calculated as such:

= (Call premium/Stock price)/Days to expiration*365

Prices current as of June 19, 2012 market close

Macy's Inc. (NYSE:M) - August 40 Call

Exp MonthAugust
Stock Price$37.17
Call Bid$0.72
Days to Expiration59
Call Yield1.80%
Annualized Call Yield11.15%
Annual Dividend Yield2.19%
Total Annual Yield13.34%

Tiffany & Co. (NYSE:TIF) - August 60 Call

Exp MonthAugust
Stock Price$53.70
Call Bid$0.42
Days to Expiration59
Call Yield0.69%
Annualized Call Yield4.26%
Annual Dividend Yield2.38%
Total Annual Yield6.64%

Verizon Communications (NYSE:VZ) - October 46 Call

Exp MonthOctober
Stock Price$43.73
Call Bid$0.41
Days to Expiration122
Call Yield0.82%
Annualized Call Yield2.46%
Annual Dividend Yield4.56%
Total Annual Yield7.02%

Apple Inc. (NASDAQ:AAPL) - September 630 Call

Exp MonthSeptember
Stock Price$587.41
Call Bid$17.75
Days to Expiration94
Call Yield3.01%
Annualized Call Yield11.70%
Annual Dividend Yield0.00%
Total Annual Yield


Source: Covered-Call Ideas: Macy's, Tiffany, Verizon, And Apple