Wednesday, October 7, 2015

Another QCOM income analysis

What a difference a day makes.  What difference does a month make?

When you discuss the options market people fall into one of three categories.  (1)  I don't do that stuff (2) I trade options and consider a 30 day expiration very long (3) I sell options to make more income from my stocks.

The moral of this post is to emphasize that income investors, those who fall into category number three,  must receive both the dividend and the call premium from a stock to consistently receive more income than you could from dividends alone or from covered calls alone.

I will admit that options trading has potential but for conservative investors, selling calls on solid dividend stocks is the best opportunity to add to income with relatively low risk.

The difference illustrated in the tables above is 1.2%.   If you sold a call with a November expiration, and your stock is called away, you will not receive the dividend.   QCOM's expected next ex-dividend date is November 30,2015.  If your stock is called away, the buyer of your stock will receive the dividend.   You still pocket the call premium and the capital gain.   Those are good outcomes.

However, if your call expires in December, and we assume you will still own the stock in November, you will receive the dividend which is expected to be held at $.48.   Let's assume your stock is called away in December.   Your gain is 17.61% versus 16.41%.   The difference is 1.2% and that can make a difference.

The other possibility is that you end up owning QCOM.  The stock price could sink and the call buyer does not exercise their right to buy your shares.   You end up pocketing the call premium for a yield on your cost of 1.59% on the November expiration or 1.94% on the December expiration.

This is an interesting study in how to use covered call on dividend stocks to boost your income and your capital gains.


Disclosure: Long QCOM with calls