Showing posts with label Covered call. Show all posts
Showing posts with label Covered call. Show all posts

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
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Monday, August 19, 2013

Dividends & Income on spin off companies

Two dividend machines from 2011 initiated spin off companies that provide dividend and income investors with covered call income opportunities.  

Two examples, Abbott Laboratories spin off of AbbVie, and Conoco Phillips spin off of Phillips 66, are discussed below.


Abbott Laboratories, symbol ABT, was one of the first stocks I profiled as a dividend machine in 2011.    ABT spun off the company AbbVie, symbol ABBV.   While ABBV pays a nice 3.2% dividend, I find opportunity to supplement my income with covered calls.

This tables illustrates the value of a November $45 call on ABBV using today's intra-day price basis of $43.57.   My broker calculates the basis as $29.50 from the spin off.

The point of selling an ABBV call is not for a capital gain.   Although that potential for capital gain is nice,  I would actually like to keep ABBV.  The point of this covered call is to boost income and the call premium of $1.20 for an immediate yield of 2.75% is compelling.


Similarly, Conoco Phillips, symbol, COP, initiated a spin off of Phillips 66, symbol PSX.   PSX pays a 2.22% dividend yield.   Again, a covered call provides an opportunity to boost income.

This table uses today's intra-day price of $55.50.  My broker calculates the basis from the spin off as $64.17.

It is significant to note that the strike price of $65.00 provides a return of my capital.   I would not sell the call if it resulted in a capital loss.

I would stick with the 2.22% yield until either the stock price comes back or I can sell an "in the money call" .. a call with a strike price equal to or greater than my basis.

These are two calls for dividend and income investors to consider for the income producing portion of their portfolios.

The Money Madam
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Monday, July 22, 2013

Retirement Income - Safe Withdrawal Rate

How much can you withdraw from your retirement and never run out of money? 


You tell me how long you are going to live and how much money you are going to spend each year and I can calculate a reasonable safe withdrawal rate.   But, no one has the answers to those questions.

Baby boomers who are about to face life without a paycheck have to figure this out. has a very good article on this subject; it is a quick review and point outs some of the many variables that soon to be retirees face.  It is worth your time to read it.

Portfolio Value – Withdrawal Rate

Two points in this article should make you think.   One is the effect your portfolio value will have on your safe withdrawal rate.   For instance if you retired in 2007, the value of your portfolio would have been much greater than if you retired in 2008.  Just one year difference and the amount of money you have to live on significantly changes your way of life.     I don’t think many investors really understand that point.   Most people think that since their portfolio has gone up about 10 percent every year since the crash in 2008 and it will continue to deliver those returns.    This is a foolish assumption.

The other point of emphasis is that a four percent withdrawal rate is a commonly accepted safe rate of withdrawal.   The experts have spent many hours forecasting the rate of withdrawal based on life expectancies and portfolio health.  This article is correct, a four percent withdrawal rate is accepted as a good rule of thumb.

Let Your Savings Do the Work

I have a different take on the matter.   I believe you can manage a portfolio of dividend stocks and bonds that can create four percent.   Therefore, if you can live on four percent, you need not ever tap your principle.   Moreover, it will not matter how much the investments are worth.  Your portfolio value can gyrate wildly and still you get the four percent.   Because your savings are doing the work, they create the necessary money you need to live on without having to dip into your retirement savings.   Check out my 2013 portfolio of dividend stocks.2013 Dividend Stocks - does not include bond or calls.

What Investments?

Stocks that pay dividends and bonds that pay interest are the investments that can deliver four percent for your retirement income.  In this blog I concentrate on companies that deliver consistent and ever increasing dividends.  Many of these companies also have covered call option income potential.  In addition I use carefully selected bonds.  

I use four criteria to select my dividend stocks.   I use covered call options on many of these stocks to create more income and to help me take profit and reinvest for more cash flow.  I also like below par bonds.  Bonds, however, are very expensive in 2013.   Yet, a good bond comes available now and then such as the Alcoa Bond I covered in my post on June 24, 2013.  

Follow an Investment Discipline

I find that ordinary investors can learn how to manage a portfolio of dividend stocks when they have a disciple to follow.   With experience, ordinary investors can learn to safely use covered call options to improve portfolio return.   Bonds are not difficult to understand, but they are difficult to find.    Ordinary investors should get to know the bond desk at their brokerage and work with them to find bonds that deliver greater income than a dividend stock; with spread out maturities, and that sell at a discount to par.  They’ll do the work for you, it is their job.  It is your job to decide which bonds to actually buy.   

To be fair, real estate, preferred securities, and annuities are income instruments that many investors use.   These are much more complex than stocks and bonds.   I do not cover those instruments in this blog.    

I know this much, a carefully selected portfolio of stocks and bonds can deliver enough income to make worrying about the “safe withdrawal rate” unnecessary.


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Friday, May 31, 2013

Darden Restaurants nearly Seven Percent for your retirement income

Today, I am adding to Darden Restaurants, symbol DRI to make 6.93% of income.  


I am using proceeds from Kimberly Clark, symbol KMB, to add to my position in DRI.   I have loved owning KMB but my theory, as you know, is there is always another stock to buy and I really want more than just three percent income.   Therefore, I cashed in my gains by setting a stop on KMB stock at $100.  The stock price hit the stop price earlier this week so I have profit to invest.


I am leery of this stock market so I selected a dividend machine that currently pays 3.79%.   My original buy on DRI was about $45.00/share.  Today I bought at $52.66 and immediately sold a call for a premium of $1.65.  

If I sell DRI at the strike price of $55.00, I will gain 7.58%.   No matter what, I get to keep the $1.65 per share from selling the call and that is a yield of 3.13%.   If I hold DRI for one year and the stock price goes nowhere, my income will be a mighty $1.65 per share from the call premium plus $2.00 per share from the dividend.  



Call Option
Oct. 55

Cost Basis
 $    52.66
Strike Price
 $    55.00
Call Premium
 $       1.65

Premium Yld
Total Return
Where else can I get a 6.93% yield on a stock I consider safe. See the covered call table below for details on the covered call income.

Add the dividend to the call income and you get nearly seven percent income.

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