Caterpillar has been a very good income stock for me between covered calls and a juicy dividend. However, CAT's fundamentals are terrible. Revenues have plummeted; earnings per share are less than dividends paid out and CAT's stock price reflects that weakness.
I don't like to sell calls with a strike price less than my basis, so I have a couple of choices. One is to add shares so that I average a lower basis and the other is to wait until the sentiment improves enough that someone will buy a call from me at or above my basis.
Because CAT's fundamentals are so weak, I do not want to add so I have patiently waited for improved sentiment and am selling a call today.
Here are the details: September 16, 2016 expiration, $82.50 strike price, call premium of $1.05. Because the expiration date is after the next ex-dividend date of July 18, I have included the dividend payment in the total return.
I use this technique when I have a previously solid stock that has suffered. I don't mind being stuck with something like CAT with its 4% yield but I am a nervous investor and will be just as happy if CAT is called away.
Discloure: Long CAT with calls