Buy To Close/Sell To Open Rolling Covered Calls
Summary
- BBY is a cash machine delivering both dividends and covered call premium income; today I will show you the potential return on a February $115 covered call.
- My basis is $102 which is higher than BBY's current price and I could have added more but my allocation to BBY is full.
- With a P/E of 10 and a very good recent earnings report, I can't argue with anyone who initiates a position or adds to their position here.
- The stock price softened after their recent earnings report; in response Patrick Doyle, BBY's chairman, bought stock. That is a confidence builder.
Best Buy's fundamentals are very good. The fundamentals I use as an income investor include the dividend yield, the dividend coverage ratio, revenue and earnings trends as well as D/E (debt to equity) ratio.
- Dividend Yield 2.7%
- Dividend coverage $10.31 (TTM) earnings/$2.80 dividend = 27.16%
- YOY revenue growth 8.3% and most recently quarterly revenue growth 42.89%
- D/E ratio .29
On September 22, 2021, I sold a $125 call with a December 17, 2021 expiration and received a premium of $1.32. I will receive this quarter's dividend of $.70 on all my shares as it goes ex-dividend today.
Today I bought back that call for $.02. That adjusts my premium income from $1.32 to $1.30, I can afford that. And then I sold a new call on these shares which have a basis of $102.
I selected a February $115 call and received a premium of $1.40. You'll notice that is equivalent to two extra dividend payments. This is how I make a living. The data on this trade are presented below.
If you were to initiate a new position or add to your current position today, you would still receive the dividend due today and the call premium. The data on that trade are presented below.
Using a quality dividend stock is most important to this strategy. You have to have the staying power to live through periods where you are underwater as I am on these shares of BBY. I have been doing this a long time and have the patience; not all investors have that luxury.
Good Income Investing, MM
Analyst's Disclosure: I/we have a beneficial long position in the shares of BBY either through stock ownership, options, or other derivatives.
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