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Covered Call Strategies
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Long term equity investor interested in generating yield from writing calls to aid in overall return.
  • 3 Casino Covered Calls: LVS, WYNN, PENN 0 comments
    Aug 27, 2012 11:00 PM | about stocks: PENN, WYNN, LVS

    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 4 months. Optimally calls will be written on the same underlying 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 August 16, 2012 market close

    Penn National Gaming (PENN) October 41 call

    Strike41
    Exp MonthOctober
    Stock Price$38.63
    Call Bid$0.75
    Days to Expiration65
    OTM6.14%
      
    Call Yield1.81%
    Annualized Call Yield10.18%
    Annual Dividend Yield0.00%
    Total Annual Yield10.18%

    Wynn Resorts (WYNN) September 110 call

    Strike110
    Exp MonthSeptember
    Stock Price$104.24
    Call Bid$1.48
    Days to Expiration37
    OTM5.53%
      
    Call Yield1.37%
    Annualized Call Yield13.53%
    Annual Dividend Yield2.00%
    Total Annual Yield15.53%

    Las Vegas Sands (LVS) September 44 call

    Strike44
    Exp MonthSeptember
    Stock Price$41.18
    Call Bid$0.62
    Days to Expiration37
    OTM6.85%
      
    Call Yield1.38%
    Annualized Call Yield13.65%
    Annual Dividend Yield2.54%
    Total Annual Yield16.19%

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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