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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 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

TickerGOOG
Strike810
Exp MonthNovember
Stock Price$755.49
Call Bid$6.50
Days to Expiration31
OTM7.22%
Call Yield0.85%
Annualized Call Yield10.05%
Annual Dividend Yield0.00%
Total Annual Yield10.05%

Boeing (BA) January 80 call

TickerBA
Strike80
Exp MonthJanuary
Stock Price$73.67
Call Bid$0.64
Days to Expiration94
OTM8.59%
Call Yield0.80%
Annualized Call Yield3.11%
Annual Dividend Yield2.40%
Total Annual Yield5.51%

Apple (AAPL) November 690 call

TickerAAPL
Strike690
Exp MonthNovember
Stock Price$644.60
Call Bid$8.20
Days to Expiration31
OTM7.04%
Call Yield1.26%
Annualized Call Yield14.89%
Annual Dividend Yield1.64%
Total Annual Yield16.53%

Home Depot (HD) January 65 call

TickerHD
Strike65
Exp MonthJanuary
Stock Price$61.40
Call Bid$0.87
Days to Expiration94
OTM5.86%
Call Yield1.34%
Annualized Call Yield5.19%
Annual Dividend Yield1.89%
Total Annual Yield7.08%

Honeywell (HON) January 65 call

TickerHON
Strike65
Exp MonthJanuary
Stock Price$61.90
Call Bid$0.97
Days to Expiration94
OTM5.01%
Call Yield1.49%
Annualized Call Yield5.77%
Annual Dividend Yield2.40%
Total Annual Yield8.17%
Source: 5 Blue Chip Covered Calls: GOOG, BA, AAPL, HD, HON