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Buy To Close/Sell To Open Rolling Covered Calls

Dec. 13, 2021 1:36 PM ETBest Buy Co., Inc. (BBY)2 Comments
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MoneyMadam's Blog
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  • 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.

BBY Feb $115 callIf 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.

BBY Feb $115 call new positionUsing 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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