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

Includes: AAPL, M, TIF, VZ
by: Eric Kelly

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

Strike 40
Exp Month August
Stock Price $37.17
Call Bid $0.72
Days to Expiration 59
OTM 7.61%
Call Yield 1.80%
Annualized Call Yield 11.15%
Annual Dividend Yield 2.19%
Total Annual Yield 13.34%

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

Strike 60
Exp Month August
Stock Price $53.70
Call Bid $0.42
Days to Expiration 59
OTM 11.73%
Call Yield 0.69%
Annualized Call Yield 4.26%
Annual Dividend Yield 2.38%
Total Annual Yield 6.64%

Verizon Communications (NYSE:VZ) - October 46 Call

Strike 46
Exp Month October
Stock Price $43.73
Call Bid $0.41
Days to Expiration 122
OTM 5.19%
Call Yield 0.82%
Annualized Call Yield 2.46%
Annual Dividend Yield 4.56%
Total Annual Yield 7.02%

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

Strike 630
Exp Month September
Stock Price $587.41
Call Bid $17.75
Days to Expiration 94
OTM 7.25%
Call Yield 3.01%
Annualized Call Yield 11.70%
Annual Dividend Yield 0.00%
Total Annual Yield


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.