5 Gold Mining Covered Calls: GOLD, GG, ABX, NEM, GDX

Includes: ABX, GDX, GG, GOLD, NEM
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 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 September 12, 2012 market close

Summary on selection:

Well it finally came! Bernanke let the dogs out (sort of) and finally eased like everyone expected. Similar to the last few times, gold is poised to make a run higher on inflation and instability. In this article, I've chosen to run a screen for calls on gold miners and the Market Vectors Gold Miners ETF (NYSEARCA:GDX). My guess is that a lot of readers will be holding these as inflation plays, the options are a good way to drag some extra income out of your trade, but be mindful and manage them so as not to cut off profit potential if the underlying explodes higher. As always, remember I am not offering advice on whether to buy or sell certain equities, these articles are purely about generating income.

Market Vectors Gold Miners (GDX) October 57 call

Ticker GDX
Strike 57
Exp Month October
Stock Price $52.48
Call Bid $0.49
Days to Expiration 37
OTM 8.61%
Call Yield 0.84%
Annualized Call Yield 8.27%
Annual Dividend Yield 0.29%
Total Annual Yield 8.56%

Newmont Mining (NEM) October 60 call

Ticker NEM
Strike 60
Exp Month October
Stock Price $55.44
Call Bid $0.53
Days to Expiration 37
OTM 8.23%
Call Yield 0.87%
Annualized Call Yield 8.54%
Annual Dividend Yield 2.25%
Total Annual Yield 10.79%

Barrick Gold (ABX) October 45 call

Ticker ABX
Strike 45
Exp Month October
Stock Price $41.66
Call Bid $0.54
Days to Expiration 37
OTM 8.02%
Call Yield 1.18%
Annualized Call Yield 11.60%
Annual Dividend Yield 1.92%
Total Annual Yield 13.52%

Goldcorp (GG) October 49 call

Ticker GG
Strike 49
Exp Month October
Stock Price $45.41
Call Bid $0.64
Days to Expiration 37
OTM 7.91%
Call Yield 1.30%
Annualized Call Yield 12.82%
Annual Dividend Yield 1.19%
Total Annual Yield 14.01%

Rangold (GOLD) October 125 call

Ticker GOLD
Strike 125
Exp Month October
Stock Price $114.35
Call Bid $0.90
Days to Expiration 37
OTM 9.31%
Call Yield 0.74%
Annualized Call Yield 7.33%
Annual Dividend Yield 0.33%
Total Annual Yield 7.66%

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.