5 Financial Covered Calls: Deutsche Bank, MasterCard, Visa, Goldman Sachs, JPMorgan

Includes: DB, GS, JPM, MA, V
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 14, 2012 market close

Summary on selection:

The financial sector is highlighted in this article mainly due to their involvement with QEinfinity and because they are present in most long-term portfolios. I personally like MasterCard (NYSE:MA) and Visa (NYSE:V) a lot but don't recommend buying into any of the other stocks listed below. In addition, the MA and V options don't match perfectly with the guidelines above but are worth pointing out for anyone who is holding those stocks. As always, these articles are focused on income generation from option selling, not stock calls.

Deutche Bank (DB) October 47.5 call

Ticker DB
Strike 47.5
Exp Month October
Stock Price $44.28
Call Bid $1.00
Days to Expiration 34
OTM 7.27%
Call Yield 2.15%
Annualized Call Yield 23.03%
Annual Dividend Yield 2.08%
Total Annual Yield 25.11%
Click to enlarge

Mastercard (MA) October 185 call

Ticker MA
Strike 485
Exp Month October
Stock Price $453.72
Call Bid $1.95
Days to Expiration 34
OTM 6.89%
Call Yield 0.42%
Annualized Call Yield 4.50%
Annual Dividend Yield 0.26%
Total Annual Yield 4.76%
Click to enlarge

Visa (V) December 145 call

Ticker V
Strike 145
Exp Month December
Stock Price $134.26
Call Bid $1.97
Days to Expiration 97
OTM 8.00%
Call Yield 1.43%
Annualized Call Yield 5.38%
Annual Dividend Yield 0.66%
Total Annual Yield 6.04%
Click to enlarge

Goldman Sachs (GS) October 130 call

Ticker GS
Strike 130
Exp Month October
Stock Price $121.03
Call Bid $0.94
Days to Expiration 34
OTM 7.41%
Call Yield 0.74%
Annualized Call Yield 7.89%
Annual Dividend Yield 1.52%
Total Annual Yield 9.41%
Click to enlarge

JP Morgan (JPM) November 45 call

Ticker JPM
Strike 45
Exp Month November
Stock Price $41.55
Call Bid $0.42
Days to Expiration 62
OTM 8.30%
Call Yield 0.89%
Annualized Call Yield 5.24%
Annual Dividend Yield 2.88%
Total Annual Yield 8.12%
Click to enlarge

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.