Do you own stocks in your portfolio? Most of us do. If so, you may want to consider selling covered calls on some of the stock to bring in a little extra income. The following article explains what covered calls are and when and why you might want to use them. It also lists 11 stocks to consider for writing covered calls on. As always, make sure you do your own due diligence. These recommendations are just one persons opinion. Make sure you do your own research before jumping on any of these.
Sophisticated dividend investors can sweeten their income streams by writing calls on the stocks they own. The resulting position is called a covered call, a favorite options strategy among retail investors.
Which stocks should be considered for a covered call strategy? The following screen was employed to find promising candidates:
Dividend yield. Each stock pays a dividend yield of at least 2%, which is in excess of the 10-year treasury bond and the dividend yield of the S&P 500 (SPY). Payout ratios exceeding 100% were excluded.
Existing call option market. These stocks have call markets. Not all stocks do.
Liquid markets. Only large-cap stocks with average volumes of 1 million shares traded per day were considered. Options markets tend to be more liquid for larger and more heavily traded stocks
Volatility and safe Altman Z-scores. Each stock placed in the “safe” category according to this bankruptcy risk measure. However, each stock had an average monthly volatility exceeding 2%, indicating that options buyers could be willing to pay for call options.
Price multiples, dividend histories, and return on equity histories are provided below:
Applied Materials Inc. (AMAT) recently traded at $12.79 per share. At this price level, the stock has a 2.5% dividend yield. For seven out of the past 10 fiscal years, a share of AMAT paid a total of $1.48 in dividends. Of these dividend payments, a total of $1.26 was paid in the last five years…
See Seeking Alpha for the rest of the article and the other 10 stocks
