An Option Play For Today In A Conservative Stock
Here's a quick "How-To" on playing the covered call game conservatively.
You will limit your upside, but you'll give yourself downside protection.
Picking a dividend growth stock is the safest way to do this.
Here's a possible way to play GLW: Buy now at $18.65 and sell the January '17 covered call for $1.45. This puts your effective cost at $17.20 (not accounting for commissions). Meanwhile, you collect the dividend. If it doesn't hit $20 by next January, rinse and repeat for January '18.
What this does:
Negative - Limit your upside if it pops this year.
Positive - Limit your downside with a stock that almost assuredly will continue to exist and continue to raise the dividend each year.
If you get called out of it in January, factoring in dividends, you'll make about $3.30 a share, or more than 15% in just under 12 months. You won't be able to find a CD or bond yielding anything close to that.
I bought 100 shares of GLW for $18.83 in November and sold a covered call for this month (2/19/16) for $19, for a net of $93 after commissions. So, my effective price is $17.90. If I get called out, I made about $100 after commissions, plus the $12 dividend I collected. If I don't get called out on Friday, I will be selling the $20 covered call for this upcoming January.
Options are a nice way to go conservative if you use them wisely. You limit your upside with the calls, but more times than not, they expire worthless, allowing you to keep the premium. Once they expire, you can decide if you want to do it again or simply hold the stock. But beware, you can get burned too, if the stock drops so low (say, for example, GLW sinks to $12 by next January), keeping the call premium doesn't do much for you when you're out over 30% a share in less than a year. I don't think that will happen with GLW, which is why I made this play.
Disclosure: I am/we are long GLW.