Wednesday, January 29, 2020

SWKS call potential

Friday, January 31, the final two calls from January expire. I make a living off of selling covered calls on mostly dividend stocks.  In January I had 33 calls on eighteen different stocks expire.

Those calls were sold as long ago as 87 days and recently as 2 weeks.

One of the two calls left is Skyworks, symbol SWKS a 1.5% dividend yielding stock.  My expiration is $119 and my basis on this lot is $110.80.  I received a premium of $1.90. SWKS closed at $117.80 today so I am in the money but below the strike price.  SWKS is volatile enough that I do not know what will happen on Friday.

How would selling a call on SWKS look today.  When it closed on 1/29/20 I looked at calls and here is what I found.  A strike price of $130 well above yesterday's basis; a call premium of $1.20 close to what I want and an expiration date after the next ex-dividend date.

Stock Price on Open Call Expiration 
SWKS $114.94 3/20/2020
Cost Basis:   1/29/2020 $117.89
Strike Price: $130.00
Call Premium:  $1.20
Dividend  2/10/2020 $0.440
Call Yield on Basis 1.02%
Call + Dividend Yield on Basis 1.39%
$ Gain if Assigned $13.75
Max Return  if Assigned 11.66%

In order to determine how to proceed today, I have included an interactive tool. You can enter your data and determine how your trade might work out.  I have put in the data that I used today to decide if I should add SWKS and sell another call.  You can enter your own data and determine if the trade is for you.

Enter Cost Basis:
Enter Strike Price:
Enter Call Premium:
Enter Dividend if ex-div before Option Expiration:
Call Yield
Total Return Percent if Assigned
This tool may not work with all browsers.  You can use the calculator that is  in my call options page.

The example below uses  closing price on both the common stock and on the option on 1/29/20.  Skyworks is ex-dividend 2/10/20 so I would select an expiration date after the ex-dividend date. I like to get at least 1% on my capital from the call premium when I am initiating a new position.  I want at least $1.20 in call premium income.

Strike price is of course important.  When I have an established position, I am more careful about making sure the strike price provides significant capital gains. But with a new position on a stock that is only yielding 1.47%, I can live with bagging only a 5% capital gain should this lot of SWKS be called away.

Every income investor who has to depend on their investments to create the major portion of their income stream should make an effort to learn how to sell covered calls.

I reinforce the need for research.  You want to sell calls on solid stocks that have enough of a catalyst to deliver growth and potential call income.

M* MoneyMadam
Disclosure:  Long SWKS with calls