5 Tech Covered Calls: eBay, QCOM, AMZN, GOOG, AAPL

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 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

Ticker EBAY
Strike 50
Exp Month November
Stock Price $46.22
Call Bid $0.67
Days to Expiration 39
OTM 8.18%
Call Yield 1.34%
Annualized Call Yield 12.55%
Annual Dividend Yield 0.00%
Total Annual Yield 12.55%

Qualcomm (QCOM) November 65 call

Ticker QCOM
Strike 65
Exp Month November
Stock Price $60.39
Call Bid $0.61
Days to Expiration 39
OTM 7.63%
Call Yield 0.93%
Annualized Call Yield 8.68%
Annual Dividend Yield 1.60%
Total Annual Yield 10.28%

Amazon (NASDAQ:AMZN) November 270 call

Ticker AMZN
Strike 270
Exp Month November
Stock Price $250.96
Call Bid $5.10
Days to Expiration 39
OTM 7.59%
Call Yield 2.01%
Annualized Call Yield 18.83%
Annual Dividend Yield 0.00%
Total Annual Yield 18.83%

Google (GOOG) November 800 call

Ticker GOOG
Strike 800
Exp Month November
Stock Price $744.09
Call Bid $8.30
Days to Expiration 39
OTM 7.51%
Call Yield 1.11%
Annualized Call Yield 10.38%
Annual Dividend Yield 0.00%
Total Annual Yield 10.38%

Apple (AAPL) November 680 call

Ticker AAPL
Strike 680
Exp Month November
Stock Price $635.85
Call Bid $12.15
Days to Expiration 39
OTM 6.94%
Call Yield 1.90%
Annualized Call Yield 17.81%
Annual Dividend Yield 1.70%
Total Annual Yield 19.51%

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.