5 Blue Chip Covered Calls: GOOG, BA, AAPL, HD, HON

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 |  Includes: AAPL, BA, GOOG, HD, HON
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 17, 2012 market close

Summary on selection:

High dividend Blue Chips stocks seem to be the only available solid investment lately and going into the next couple years.

Lower Beta + High Dividend = Win.

With Federal easing and tricky accounting/reporting, my account is leaning towards solid companies with solid dividends (no financials!). All of these companies make products that will continue to do business in most economic situations (Apple and Google; people won't stop buying smartphones or using the internet anytime soon).

The tried and true advice of "stick to the basics" is more and more relevant. I personally like all of these companies mentioned below for their exposure to either Federal easing opportunities or plain old global economic conditions improving. As always, I'm not recommending equity buys and sells, I'm spotlighting calls to help generate income. The Blue Chips will win in this market...greed is frowned upon by the market gods.

Google (GOOG) November 810 call

Ticker GOOG
Strike 810
Exp Month November
Stock Price $755.49
Call Bid $6.50
Days to Expiration 31
OTM 7.22%
Call Yield 0.85%
Annualized Call Yield 10.05%
Annual Dividend Yield 0.00%
Total Annual Yield 10.05%
Click to enlarge

Boeing (BA) January 80 call

Ticker BA
Strike 80
Exp Month January
Stock Price $73.67
Call Bid $0.64
Days to Expiration 94
OTM 8.59%
Call Yield 0.80%
Annualized Call Yield 3.11%
Annual Dividend Yield 2.40%
Total Annual Yield 5.51%
Click to enlarge

Apple (AAPL) November 690 call

Ticker AAPL
Strike 690
Exp Month November
Stock Price $644.60
Call Bid $8.20
Days to Expiration 31
OTM 7.04%
Call Yield 1.26%
Annualized Call Yield 14.89%
Annual Dividend Yield 1.64%
Total Annual Yield 16.53%
Click to enlarge

Home Depot (HD) January 65 call

Ticker HD
Strike 65
Exp Month January
Stock Price $61.40
Call Bid $0.87
Days to Expiration 94
OTM 5.86%
Call Yield 1.34%
Annualized Call Yield 5.19%
Annual Dividend Yield 1.89%
Total Annual Yield 7.08%
Click to enlarge

Honeywell (HON) January 65 call

Ticker HON
Strike 65
Exp Month January
Stock Price $61.90
Call Bid $0.97
Days to Expiration 94
OTM 5.01%
Call Yield 1.49%
Annualized Call Yield 5.77%
Annual Dividend Yield 2.40%
Total Annual Yield 8.17%
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.