5 Energy Covered Calls: National Oilwell Varco, Baker Hughes, Anadarko, Hess, Chesapeake

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Includes: APC, BHI, CHK, HES, NOV
by: Covered Call Strategies

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:

  • Generating 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 (OTM), to avoid being called away and to give room for underlying movement.
  • 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 hiccups that may occur.

Annualized Call Yield performance can be calculated as such:

= (Call premium - 0.05 /Stock price)/Days to expiration*365

Prices current as of August 9, 2012 market close

National Oilwell Varco, Inc. (NOV) September 82.5 call

Strike 82.5
Exp Month September
Stock Price $76.98
Call Bid $0.92
Days to Expiration 44
OTM 7.17%
Call Yield 1.13%
Annualized Call Yield 9.38%
Annual Dividend Yield 0.63%
Total Annual Yield 10.01%

Baker Hughes Inc. (BHI) September 52.5 call

Strike 52.5
Exp Month September
Stock Price $48.43
Call Bid $0.46
Days to Expiration 44
OTM 8.40%
Call Yield 0.85%
Annualized Call Yield 7.02%
Annual Dividend Yield 1.26%
Total Annual Yield 8.28%

Anadarko Petroleum Corporation (APC) September 75 call

Strike 75
Exp Month September
Stock Price $69.66
Call Bid $1.30
Days to Expiration 44
OTM 7.67%
Call Yield 1.79%
Annualized Call Yield 14.89%
Annual Dividend Yield 0.52%
Total Annual Yield 15.41%

Hess Corporation (HES) September 52.5 call

Strike 52.5
Exp Month September
Stock Price $49.59
Call Bid $0.87
Days to Expiration 44
OTM 5.87%
Call Yield 1.65%
Annualized Call Yield 13.72%
Annual Dividend Yield 0.80%
Total Annual Yield 14.52%

Chesapeake Energy Corporation (CHK) September 22 call

Strike 22
Exp Month September
Stock Price $20.31
Call Bid $0.46
Days to Expiration 44
OTM 8.32%
Call Yield 2.02%
Annualized Call Yield 16.75%
Annual Dividend Yield 1.76%
Total Annual Yield 18.51%

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