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3 Casino Covered Calls: LVS, WYNN, PENN

|About:Las Vegas Sands Corp. (LVS) Includes:Penn National Gaming, Inc. (PENN), WYNN

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

Strike 41
Exp Month October
Stock Price $38.63
Call Bid $0.75
Days to Expiration 65
OTM 6.14%
Call Yield 1.81%
Annualized Call Yield 10.18%
Annual Dividend Yield 0.00%
Total Annual Yield 10.18%

Wynn Resorts (WYNN) September 110 call

Strike 110
Exp Month September
Stock Price $104.24
Call Bid $1.48
Days to Expiration 37
OTM 5.53%
Call Yield 1.37%
Annualized Call Yield 13.53%
Annual Dividend Yield 2.00%
Total Annual Yield 15.53%

Las Vegas Sands (LVS) September 44 call

Strike 44
Exp Month September
Stock Price $41.18
Call Bid $0.62
Days to Expiration 37
OTM 6.85%
Call Yield 1.38%
Annualized Call Yield 13.65%
Annual Dividend Yield 2.54%
Total Annual Yield 16.19%

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