4 Fertilizer Covered Calls: MOS, LYB, MON, CF

Includes: CF, LYB, MON, MOS
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 four 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 September 5, 2012 market close

Summary on selection:

The fertilizer industry was selected based on its recent exposure to the Midwest drought. If you own any of these, think about writing calls to bring some income your way. This industry typically is favorable to own in the long run and a once-in-a-generation drought shouldn't deter you from keeping it in your portfolio. These articles are about taking care of current holdings, rather than getting into new positions, I don't recommend buying or selling any of the stocks, only writing these calls.

The Mosaic Company (MOS) October 62.5 call

Ticker MOS
Strike 62.5
Exp Month October
Stock Price $58.81
Call Bid $1.08
Days to Expiration 45
OTM 6.27%
Call Yield 1.75%
Annualized Call Yield 14.21%
Annual Dividend Yield 1.70%
Total Annual Yield 15.91%

LyondellBasell Industries N.V. (LYB) October 50 call

Ticker LYB
Strike 50
Exp Month October
Stock Price $46.96
Call Bid $0.45
Days to Expiration 45
OTM 6.47%
Call Yield 0.85%
Annualized Call Yield 6.91%
Annual Dividend Yield 3.41%
Total Annual Yield 10.32%

Monsanto Company (MON) October 95 call

*This pick is slightly weaker than the rest, but is still another option.

Ticker MON
Strike 95
Exp Month October
Stock Price $87.55
Call Bid $0.59
Days to Expiration 45
OTM 8.51%
Call Yield 0.62%
Annualized Call Yield 5.00%
Annual Dividend Yield 1.70%
Total Annual Yield 6.70%

CF Industries Holdings, Inc. (CF) October 225 call

Ticker CF
Strike 225
Exp Month October
Stock Price $208.23
Call Bid $3.40
Days to Expiration 45
OTM 8.05%
Call Yield 1.61%
Annualized Call Yield 13.05%
Annual Dividend Yield .768%
Total Annual Yield 13.55%

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.