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.
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.
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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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.
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