covered call trade ideas

5 Covered Call Trade Ideas – Target 5% By Oct 8, 2021

Are you a dividend investor?  What if I told you there was a way to double, or even triple your income without incurring much risk.  In this article, I’ll introduce you to 5 covered call trade ideas on quality companies – dividend aristocrats that will do just that.  I’ve organized the trade ideas from the smallest annualized return to the highest.  Also, the call options expire soon – on Oct 8st, 2021.  So, double-check the numbers, and commissions, before making any trade. Finally, these covered call trade ideas all have at least a 90% chance of expiring worthless.  I also made sure that there’s no earnings release or dividend payout up to and including the expiration. 

Now you might be wondering, what do I know about selling covered calls?  Well, I’m not a financial advisor or licensed in any way to provide investment advice.  Rather, I’m an active trader and have sold covered call options profitably, for nearly 20 years.  And the trade ideas in this article are for informational purposes only, so they are not a suggestion to buy or sell.  

What is a covered call?

A covered call is a contract that you can sell, and collect a premium on.  The option premium is the income you get to keep.  The call option gives the buyer the right, but not the obligation to BUY a specific underlying security from you, at a specific price – known as the strike price, at ANY point until the option expires.  So, if the stock trades above the strike price at expiration, you’ll have to sell your stocks.  And if it doesn’t, you get to keep the income and the stocks.  Also, each call option contract is good for 100 shares of the underlying security.  So, if you sell 1 contract, you’ll need to have at least 100 shares of the stock for the call option to be “covered”. 

5 Covered Call Trade Ideas

The covered call trade ideas in this article all have Dividend Aristocrats as their underlying security.  Dividend aristocrats are a group of 65 stocks in the S&P 500 Index that have raised their dividends for more than 25 consecutive years.  They are among the best dividend stocks investors can buy, and hold over the long term.  They also have a number of key characteristics in common. First, they are leaders in their industry. Next, they have shareholder-friendly management teams that prioritize raising dividends. And finally, they have long-term growth potential due to their competitive advantages. 


Covered Call Trade Idea #1: Exxon Mobile

Alright, so let’s begin with Exxon Mobile – the largest oil company in the US.  Exxon operates three large business segments. First is the Upstream segment which includes oil and gas exploration and production. Second, are downstream activities that include refining and marketing. And last, manufactured chemicals which include aromatics, polyethylene, and polypropylene plastics.

For this trade idea, if you own at least 100 shares in XOM, the call option with a $59 strike price could be interesting.   It’ll give you $13 in covered call income at the midpoint, which represents a 5.19% annual return, and it has more than a 92% of expiring worthless.  To make the trade, open your brokerage account and sell to open 1 or more contracts of XOM with a $59 strike and October 8, 2021 expiry.  Set a limit price of $0.13 a share. And since 1 contract is for 100 shares, it means you’ll collect $13, minus commissions when the order fills.

Related read: How to Sell Weekly or Monthly Put Options For Income

Covered Call Trade Idea #2: Nucor

The next covered call trade idea in this article is on Nucor – the largest steel producer in North America.  Nucor’s headquarters are in Charlotte, North Carolina, and has a market cap of $17 billion. The company currently operates in three segments: Steel Mills – the largest segment by revenue, Steel Products, and Raw Materials.

For this trade idea, the call option with a $119 strike could be interesting.  It’ll give you $23 in covered call income at the midpoint, which represents a 5.21% annual return, and has more than a 95% of expiring worthless.  To make the trade, open your brokerage account and sell to open 1 or more contracts of NUE with a $119 strike and October 8th, 2021 expiry.  Set a limit price of $0.23 so that you’ll collect $23 minus commissions when the order fills.


Covered Call Trade Idea #3: V.F. Corporation

V.F. Corporation (VFC) is next on the list and is a Dividend Aristocrat as it has increased its dividend for 48 years in a row. V.F. Corp increases its dividend each year, including 2020 which was a very difficult year for the company, and the broader economy, due to the coronavirus pandemic. They are also a giant in the clothing industry. The company’s annual sales exceed $10 billion and has a market cap of over $26 Billion.

So, for this trade idea, if you own at least 100 shares in VF Corporation, a call option with a $73 strike price could be interesting.   It’ll give you $18 in covered call income at the midpoint, which represents a 5.89% annual return, and has more than a 91% of expiring worthless.  To make the trade, open your brokerage account and sell to open 1 or more contracts of VFC with a $73 strike price, that expires on October 8, 2021.  You can set a limit price of $0.18 a share and since 1 contract is for 100 shares. And, it means you’ll collect $18 minus commissions when the order fills.

Covered Call Trade Idea #4: Caterpillar Inc.

The next trade is on Caterpillar Inc. – a company that got founded in 1925 and joined the Dividend Aristocrats list in 2019. It’s impressive because Caterpillar operates in a highly cyclical industry, which normally prevents companies from having long histories of annual dividend increases.  Not so with Caterpillar, as their management team has proven its commitment to returning cash to shareholders even when times are tough. Caterpillar also has incredibly competitive advantages that allow it to raise its dividend each year, even through downturns in the global economy.

So, for this trade idea, if you own at least 100 shares in Caterpillar, the call option with a $207.50 strike price could be interesting.   It’ll give you $51 in covered call income at the midpoint, which represents a 5.99% annual return, and has more than a 90% of expiring worthless.  To make the trade, open your brokerage account and sell to open 1 or more contracts of CAT with the $207.50 strike price, that expires on October 8, 2021.  You can set a limit price of $0.51 a share. And since 1 contract is for 100 shares, it means you’ll collect $51 minus commissions when the order is filled.

Covered Call Trade Idea #5: IBM

The last and highest yielding trade idea is IBM – a global tech company that provides integrated enterprise solutions for software, hardware, and services. In the services business, IBM is the world’s largest IT provider with a 5.5% market share. In software, IBM’s software business connects applications and devices to each other. And, In hardware, IBM sells the z15 mainframes, storage, and Power-based servers. 


For this trade idea, the call option with a $146 strike could be interesting.   It’ll give you $38 in covered call income at the midpoint, which represents an excellent 6.28% annual return, and has a 90% chance of expiring worthless.  To make the trade, open your brokerage account and sell to open 1 or more contracts of IBM with a $146 strike and October 8, 2021 expiry.  And as always, set a limit price of $0.38 so that you’ll collect $38 minus commissions when the order is filled.

Update Oct 10, 2021: XOM would have been called as the stock closed at $62.18, and you would have had a total of $5900 deposited into your brokerage account, in addition to the option premium. Assuming XOM was bought on the date of publishing (Sept 23, 2021), the net profit would be approx. $205 – depending on the purchase price. The Nucor, VF, Caterpillar, and IBM call options would have expired worthless, giving you $130 – for a total profit of ~$335 per contact.

*Disclaimer: On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. The information herein is based solely on my personal opinion and experience. All investments hold inherent risk, and the information provided should not be interpreted as any kind of guidance, recommendation, offer, advice, or suggestion. Any ideas and strategies discussed on this channel should not be implemented without first considering your financial and personal circumstances or without consulting a financial professional.

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