3 Semiconductor Covered Call Ideas: CEVA, MCHP, ARMH

Includes: ARMH, CEVA, MCHP
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 18, 2012 market close

Summary on selection:

After the debacle with Google today I felt compelled to post some tech related stocks for those of you who were beaten up yesterday. I included Apple and Google in yesterday's article so I decided to focus on the others today. If you were quick enough to sell the calls I recommended on Google this morning you'll most likely be able to close them out tomorrow for a great profit. The semiconductor industry is particularly interesting to me based on the demand for smart phones, tablets, and laptops looking forward into the future. The old days of having one house phone and one desktop per family are over. If you're holding any of these please take a look at the ideas below, income generation from calls can boost the porfotlio performance greatly when used properly. As always, these articles are not recommendations to buy or sell certain equities, the idea is to help spotlight call contracts to help boost returns.

CEVA Inc. (CEVA) December 17.50 call

Ticker CEVA
Strike 17.5
Exp Month December
Stock Price $15.02
Call Bid $0.45
Days to Expiration 65
OTM 16.51%
Call Yield 2.66%
Annualized Call Yield 14.95%
Annual Dividend Yield 0.00%
Total Annual Yield 14.95%

Microchip Technology (MCHP) January 34 call

Ticker MCHP
Strike 34
Exp Month January
Stock Price $31.72
Call Bid $0.45
Days to Expiration 93
OTM 7.19%
Call Yield 1.26%
Annualized Call Yield 4.95%
Annual Dividend Yield 4.43%
Total Annual Yield 9.38%

ARM Holdings (ARMH) January 31 call

Ticker AMD
Strike 31
Exp Month January
Stock Price $28.50
Call Bid $0.85
Days to Expiration 93
OTM 8.77%
Call Yield 2.81%
Annualized Call Yield 11.02%
Annual Dividend Yield 0.56%
Total Annual Yield 11.58%

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.