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A Covered Call is a good options strategy for an investor who holds a long position in a stock that has a great long term potential but a possible neutral short term performance.

In this strategy, the investor can sell (i.e. write) the call options on the same stock he owns, to get a better annualized return from that stock.

The idea is to stay long on the position and generate income from the premium obtained by selling the call.

As discussed above, this strategy is best employed for a stock that the investor would consider a great long but yet have a neutral view in the near term.

In this article, we pick 4 such low risk covered calls for four solid stocks.

1. Microsoft (NASDAQ:MSFT) - A September 2012 covered call with a $30 strike price, for a net debit of around $29.08.

  • 52-week Range: $23.79-$32.95
  • Support: $29.92; Resistance: $31.02 range
  • Duration: 82 days
  • Protection: 4.9%
  • Annualized Return: 14.1%
  • Assigned Return: 3.15%
  • Losses below: $29.08
  • Caveat: If MSFT trades above $31.56 at expiration of 09/22/2012, holding the stock without the call writing could have returned better profits.

2. McDonalds (NYSE:MCD) - A September 2012 covered call with a $87.5 strike price. Net debit is around $85.50.

  • Support: $87.45; Resistance: $89.75
  • 52-week range: $82.01-$102.22
  • Duration: 82 days
  • Protection: 3.4%
  • Annualized Return: 10.2%
  • Assigned Rate: 2.3%
  • Losses below: $85.50
  • Caveat: If MCD trades above $90.57 at expiration of 09/22/2012, holding the stock without this strategy could have given higher returns.

3) Chevron (NYSE:CVX) - A September 2012 covered call with a $105 strike price, for a net debit of around $101.65.

  • Support: $103.95; Resistance: $106.25
  • 52-week range: $86.68-$112.28
  • Duration: 82 days
  • Protection: 3.65%
  • Annualized Return: 14.6%
  • Assigned Rate: 3.3%
  • Losses below: $101.65
  • Caveat: If CVX trades above $108.98 at expiration on 09/22/2012, holding the stock without this strategy could have given higher returns.

4) Cummins Inc. (NYSE:CMI) - A September 2012 covered call with a $95 strike price for a net debit of around $89.80. CMI has a target price of over $140 for 2013. Target price and business segments are discussed in this article.

  • Support: $93.80; Resistance: $99.50
  • 52-week range: $79.53-$129.51
  • Duration: 82 days
  • Protection: 7.3%
  • Annualized Return: 25.7%
  • Assigned Rate: 5.78%
  • Losses below: $89.81
  • Caveat: If CMI trades above $102.51 at expiration on 09/22/2012, holding the stock without this strategy could have given higher returns.

Note: Investors must understand the risk involved with Options. There is always a higher risk of losing money compared to stocks.

Disclosure: I am long CMI.