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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:

Well it finally came! Bernanke let the dogs out (sort of) and finally eased like everyone expected. Similar to the last few times, gold is poised to make a run higher on inflation and instability. In this article, I've chosen to run a screen for calls on gold miners and the Market Vectors Gold Miners ETF (NYSEARCA:GDX). My guess is that a lot of readers will be holding these as inflation plays, the options are a good way to drag some extra income out of your trade, but be mindful and manage them so as not to cut off profit potential if the underlying explodes higher. As always, remember I am not offering advice on whether to buy or sell certain equities, these articles are purely about generating income.

Market Vectors Gold Miners (GDX) October 57 call

TickerGDX
Strike57
Exp MonthOctober
Stock Price$52.48
Call Bid$0.49
Days to Expiration37
OTM8.61%
Call Yield0.84%
Annualized Call Yield8.27%
Annual Dividend Yield0.29%
Total Annual Yield8.56%

Newmont Mining (NEM) October 60 call

TickerNEM
Strike60
Exp MonthOctober
Stock Price$55.44
Call Bid$0.53
Days to Expiration37
OTM8.23%
Call Yield0.87%
Annualized Call Yield8.54%
Annual Dividend Yield2.25%
Total Annual Yield10.79%

Barrick Gold (ABX) October 45 call

TickerABX
Strike45
Exp MonthOctober
Stock Price$41.66
Call Bid$0.54
Days to Expiration37
OTM8.02%
Call Yield1.18%
Annualized Call Yield11.60%
Annual Dividend Yield1.92%
Total Annual Yield13.52%

Goldcorp (GG) October 49 call

TickerGG
Strike49
Exp MonthOctober
Stock Price$45.41
Call Bid$0.64
Days to Expiration37
OTM7.91%
Call Yield1.30%
Annualized Call Yield12.82%
Annual Dividend Yield1.19%
Total Annual Yield14.01%

Rangold (GOLD) October 125 call

TickerGOLD
Strike125
Exp MonthOctober
Stock Price$114.35
Call Bid$0.90
Days to Expiration37
OTM9.31%
Call Yield0.74%
Annualized Call Yield7.33%
Annual Dividend Yield0.33%
Total Annual Yield7.66%

Source: 5 Gold Mining Covered Calls: GOLD, GG, ABX, NEM, GDX