6 Mining Covered Calls: FCX, TCK, CLF, X, SLW, RIO

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 |  Includes: CLF, FCX, RIO, SLW, TCK, X
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 13, 2012 market close

Rio Tinto (RIO) October 55 call

Strike 55
Exp Month October
Stock Price $50.36
Call Bid $0.80
Days to Expiration 68
OTM 9.21%
Call Yield 1.49%
Annualized Call Yield 7.99%
Annual Dividend Yield 3.26%
Total Annual Yield 11.25%
Click to enlarge

Silver Wheaton (SLW) September 33 call

Strike 33
Exp Month September
Stock Price $30.65
Call Bid $0.51
Days to Expiration 40
OTM 7.67%
Call Yield 1.50%
Annualized Call Yield 13.69%
Annual Dividend Yield 1.30%
Total Annual Yield 14.99%
Click to enlarge

US Steel (X) September 25 call

Strike 25
Exp Month September
Stock Price $22.86
Call Bid $0.41
Days to Expiration 40
OTM 9.36%
Call Yield 1.57%
Annualized Call Yield 14.37%
Annual Dividend Yield 0.87%
Total Annual Yield 15.24%
Click to enlarge

Cliffs Natural Resources (CLF) September 47 call

Strike 47
Exp Month September
Stock Price $43.48
Call Bid $0.75
Days to Expiration 40
OTM 8.10%
Call Yield 1.61%
Annualized Call Yield 14.69%
Annual Dividend Yield 5.77%
Total Annual Yield 20.46%
Click to enlarge

Teck Resources (TCK) September 32 call

Strike 32
Exp Month September
Stock Price $30.20
Call Bid $0.57
Days to Expiration 40
OTM 5.96%
Call Yield 1.72%
Annualized Call Yield 15.71%
Annual Dividend Yield 2.71%
Total Annual Yield 18.42%
Click to enlarge

Freeport McMoran (FCX) November 39 call

Strike 39
Exp Month November
Stock Price $35.48
Call Bid $0.96
Days to Expiration 68
OTM 9.92%
Call Yield 2.56%
Annualized Call Yield 13.77%
Annual Dividend Yield 3.44%
Total Annual Yield 17.21%
Click to enlarge

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