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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 12, 2012 market close

Summary on selection:

With all the hype around the iPhone 5, I've chosen some Apple-related stocks for this article. Whether it is a supplier, competitor, etc. these stocks will be effected in some way by Apple upgrading its arsenal. These are all worth a look for long-term investments, but remember these articles are focused on the options, not the underlying. Keep in mind that the stocks chosen below have potential swing wildy and grow quickly, pay close attention to your option positions and manage them with care; choosing further OTM strikes will provide space for growth.

Skyworks Solutions (SWKS) October 32 call

TickerSWKS
Strike32
Exp MonthOctober
Stock Price$29.06
Call Bid$0.70
Days to Expiration38
OTM10.12%
Call Yield2.24%
Annualized Call Yield21.48%
Annual Dividend Yield0.00%
Total Annual Yield21.48%

Google (GOOG) October 740 call

TickerGOOG
Strike740
Exp MonthOctober
Stock Price$690.88
Call Bid$7.40
Days to Expiration38
OTM7.11%
Call Yield1.06%
Annualized Call Yield10.22%
Annual Dividend Yield0.00%
Total Annual Yield10.22%

Apple (AAPL) October 720 call

TickerAAPL
Strike720
Exp MonthOctober
Stock Price$669.79
Call Bid$6.65
Days to Expiration38
OTM7.50%
Call Yield0.99%
Annualized Call Yield9.46%
Annual Dividend Yield1.60%
Total Annual Yield11.06%

Cirrus Logic (CRUS) October 48 call

TickerCRUS
Strike48
Exp MonthOctober
Stock Price$43.12
Call Bid$1.70
Days to Expiration38
OTM11.32%
Call Yield3.83%
Annualized Call Yield36.75%
Annual Dividend Yield0.00%
Total Annual Yield36.75%

Fusion-io (FIO) October 32 call

TickerFIO
Strike32
Exp MonthOctober
Stock Price$28.61
Call Bid$0.75
Days to Expiration38
OTM11.85%
Call Yield2.45%
Annualized Call Yield23.50%
Annual Dividend Yield0.00%
Total Annual Yield24.50%

Source: 5 Apple-Related Covered Calls: SWKS, GOOG, AAPL, CRUS, FIO