best stocks for covered call writing

Selling covered calls I probably love even more than selling naked puts, unfortunately, there are not many good stocks in my portfolio I could sell covered calls to generate decent monthly income yet, but I have a few candidates.

In today's article, I'm going to speak about selling covered calls on AT&T, Pfizer, and Cisco systems.

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Before we get started, here is a brief summary of what is a covered call

A covered call refers to a transaction in the financial market in which the investor selling call options owns the equivalent amount of the underlying security. To execute this an investor holding a long position in an asset then writes (sells) call options on that same asset to generate an income stream. The investor's long position in the asset is the "cover" because it means the seller can deliver the shares if the buyer of the call option chooses to exercise. If the investor simultaneously buys a stock and writes call options against that stock position, it is known as a "buy-write" transaction.

Generate monthly income selling covered calls on AT&T (T) stock

Cisco stock price as of February 10, 2020

AT&T stock price as of February 10, 2020

On February 10, 2020 you could buy 100 shares of AT&T stock spending $3,824 and simultaneously sell out of the money March 13 expiry covered call a strike price of $38.5 for about $0.64. That gets you $64 and makes about 1.67% return in about 30 days. Or about 20.04% annualized.Break-even: $39.14

If T stock closes below $38.5 on March 13, you keep the premium and start over. If the stock closes above $38.5, your stock gets called away, but check your break-even points.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $38.5, remember you have made a premium + value gain. -$3,824+$3,850+$64= +$90. That would be about 2.35% yield on your initial investment in about 30 days. About 28.2% annualized.

Remember, you are selling one contract, 100 shares of T stock, make sure you have 100 shares to sell, if called away.

Generate monthly income selling covered calls on Pfizer Inc. (PFE) stock

Cisco stock price as of February 10, 2020

Pfizer Inc. stock price as of February 10, 2020

On February 10, 2020, you could buy 100 shares of PFE stock spending $3,776 and simultaneously sell out of the money March 13 expiry covered call at a strike price of $38 for about $0.71 credit. That gets you $71 and makes about 1.88% return in about 30 days. Or about 22.56% annualized. Break-even: $38.71

If PFE stock closes below $38 on March 13, youkeep the premium and start over. If the stock closes above $38, your stock gets called away, but check your break-even points.

There are several options you could use not to get shares called away, like a roll up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $38.00, remember you have made a premium + value gain. -$3,776+$3,800+$71= +$95. That would be about 2.51% yield on your initial investment in about 30 days. About 30.12% annualized.

Remember, you are selling one contract, 100 shares of PFE stock, make sure you have 100 shares to sell if called away.

Generate monthly income selling covered calls on Cisco Systems, Inc. (CSCO) stock

Cisco stock price as of February 10, 2020

Cisco stock price as of February 10, 2020

On February 10, 2020, you could buy 100 shares of CSCO stock spending $4,833 and simultaneously sell out of the money March 13 expiry covered call at a strike price of $48.5 for about $1.52 credit. That gets you $152 and makes about 3.14% return in about 30 days. Or about 37.68% annualized. Break-even: $50.02

If CSCO stock closes below $48,5 on March 13, you keep the premium and start over. If the stock closes above $48.5, your stock gets called away, but check your break-even points.

There are several options you could use not to get shares called away, like a roll up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $48,5, remember you have made a premium + value gain. -$4833+$4850+$152= +$169. That would be about 3.49% yield on your initial investment in about 30 days. About 41.88% annualized.

Remember, you are selling one contract, 100 shares of CSCO stock, make sure you have 100 shares to sell if called away.

Make sure to check out my article about selling naked puts: 3 Trades to Generate $200/mo Selling Naked Puts on Dividend Stocks

Read my updated article: 4 Trades to Generate $430/mo Selling Covered calls on Dividend Aristocrat Stocks

The Bottom Line

Selling covered calls on these three dividend stocks right after buying them ($12,433) would generate about $287/mo. That's a 2.3% return in just 30 days or 27.6% per year.

Also, in 2020 you would get about $208 dividend from AT&T, $152 from Pfizer and $140 from Cisco systems.Combined $500 (before tax) or about a 4% dividend yield per year.

As found in my previous article about selling naked puts on these same stock we could generate about $230/mo. Now I believe that when combined, both covered calls and naked stocks on the same underlying could boost some investors portfolio by some impressive $500/mo with invested only about $12,400 boosting the total return up to a theoretical 40%.

Unfortunately, I don't have a set track record on selling covered calls on these three dividend stock, as I don't have yet a 100 shares from each of the stock, I'm still using naked puts to beef up income and acquire these stocks.

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