Seeking Alpha
Profile| Send Message|
( followers)  

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 stock 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 October 9, 2012 market close

Summary on selection:

I've listed a few options below to help generate income and provide peace-of-mind for long-term tech holders. The NASDAQ is regarded as the leading index and with the recent weakness in the index signaling a downturn in the overall equities market, I felt it necessary to write an article on the tech sector.

In the last week the NASDAQ has performed poorly relatively to the S&P 500 and DJIA, raising concerns there may be a sell-off coming in the near future. A lot of these stocks are higher beta so the option pricing will be intrinsically higher. With the possible slow down/stutter to the U.S. economy, trouble with the Middle East/oil shock, and European concerns providing headwinds, these calls will hopefully expire worthless (and if they don't then that means your underlying stock is ripping and there's no problem with that). There has also been recent moves higher in option pricing as viewed in the performance of the VIX, so these calls are ripe to pick. As always, I'm not recommending buys or sells of specific equities, only helping you to target options from which to generate income.

Ebay (EBAY) November 50 call

TickerEBAY
Strike50
Exp MonthNovember
Stock Price$46.22
Call Bid$0.67
Days to Expiration39
OTM8.18%
Call Yield1.34%
Annualized Call Yield12.55%
Annual Dividend Yield0.00%
Total Annual Yield12.55%

Qualcomm (QCOM) November 65 call

TickerQCOM
Strike65
Exp MonthNovember
Stock Price$60.39
Call Bid$0.61
Days to Expiration39
OTM7.63%
Call Yield0.93%
Annualized Call Yield8.68%
Annual Dividend Yield1.60%
Total Annual Yield10.28%

Amazon (NASDAQ:AMZN) November 270 call

TickerAMZN
Strike270
Exp MonthNovember
Stock Price$250.96
Call Bid$5.10
Days to Expiration39
OTM7.59%
Call Yield2.01%
Annualized Call Yield18.83%
Annual Dividend Yield0.00%
Total Annual Yield18.83%

Google (GOOG) November 800 call

TickerGOOG
Strike800
Exp MonthNovember
Stock Price$744.09
Call Bid$8.30
Days to Expiration39
OTM7.51%
Call Yield1.11%
Annualized Call Yield10.38%
Annual Dividend Yield0.00%
Total Annual Yield10.38%

Apple (AAPL) November 680 call

TickerAAPL
Strike680
Exp MonthNovember
Stock Price$635.85
Call Bid$12.15
Days to Expiration39
OTM6.94%
Call Yield1.90%
Annualized Call Yield17.81%
Annual Dividend Yield1.70%
Total Annual Yield19.51%
Source: 5 Tech Covered Calls: eBay, QCOM, AMZN, GOOG, AAPL