12 July Covered Calls Trades on Dividend Stocks
Small and large dividend stock investors can use monthly covered calls to generate steady monthly income from options premiums and options trading.
By Donald E. L. Johnson
Cautious Speculator
Many dividend stock investors trade monthly covered calls on their stocks to generate options premium income.
Most monthly trades end mid month. That means it’s time to create the July covered calls watch list.
My 12 covered calls trades are shown and discussed below.
I’ll add comments on the stocks, my trades and the markets in the comments section below as well as in updates as needed.
Dividend stock investors can enhance their stock dividends by selling covered calls options on all or some of the 12 stocks in my July covered calls watchlist and portfolio. All of these stocks were in the June covered calls watch list. Most of those 15 stocks expired last week, and most in this month’s list will expire on July 21 or 28.
Watch the comments on the Substack version of this article for reports on changes in the list.
The list of dividend stocks is designed to provide monthly options premium income and some diversity among the included stocks. It is assumed that covered calls trades are a diversification strategy for investors who also have portfolios of cash secured puts, more speculative stocks, exchange traded funds, mutual funds and cash.
The call options strikes that are above what I paid for the stocks include: Conagra Brands Inc. (CAG), Dow Inc. (DOW), JPM Equity Premium Income ETF (JEPI), Kimberly-Clark Corp. (KMB), Lincoln National Corp. (LNC), Altria Group (MO), J.M. Smucker Co. (SJM) and Exxon Mobil Corp. (XOM). I’m hoping to have these stocks called so I can collect short-term capital gains as well as premiums and dividends on them.
Some call options’ strikes are equal to what I paid for them. They’re down from the purchase price but their cumulative net debits may be below the purchase prices. They include: Kroger Co. (KR) and Phillips 66 (PSX).
Several stocks are down so much that the only way to get decent option premium returns on risk (RoR) is to take the relatively low risk that they will be called at strike prices below my purchase prices. If that happens, I’ll move on and won’t get back into the stocks for at least 31 days. That lets me avoid tax wash sales, which apply to stocks in tax sheltered accounts like IRAs as well as those in taxable accounts.
These dividend stocks include: Campbell Soup Co. (CPB) and Devon Energy Corp. (DVN).
Depending on market conditions and what is happening to the stocks I follow, I’ll add trades during the month and report them in the comments section and periodic updates.
The average RoR on these 12 stocks is 0.81%, or about 10.81% annualized. The June trades generated an average RoR of about 1.13%, or about 15.26% annualized.
This is because market volatility is down. That depresses options prices. Also, the June covered calls trades were done on a lot of newly purchased stocks. This allowed me to sell them at the money, which generated higher options premiums returns.
Most of these equities are in IRAs. This allows a trader to take losses and profits without worrying much about taxes other than tax wash sales. If a stock sinks to where I think it’s a lost cause, I sell it and buy something that looks more promising.
Averaging down works sometimes and can make a disaster a tragedy.
Even most of the best high yielding dividend stocks sink in bear markets. So the strategy is to buy and hold these stocks until they’re called as long as the dividend are not cut and the covered calls deliver desired returns.
I have a couple of high yielding dividend stocks that have lost a lot of their volatility. Their returns on risk are tiny.
It’s almost impossible to write calls on them without risking having them called before I want to sell them. So I’m holding them until they become more volatile again and I can resume writing covered calls on them. Meanwhile, as I collect their dividends, their net debts continue to decline.
The stocks are Kinder Morgan (KMI) and Carlyle Group (CG).
Every investor is expected to do her due diligence on the stocks and trade when prices look promising. No one can predict prices. All we can do is trade.
LINKs:
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Selling in The Money Covered Calls Can Yield Big Annual Returns on Risk. By Donald E. L. Johnson
20 Ideas for Adjusting Your Stock and Bond Portfolio, by Christina Lourosa-Ricardo.
How to Beat Inflation Tax, Bear Market Tax With Dividend Stocks, Covered Calls, Cash Secured Puts, by Donald E. L. Johnson.
Wars Breed Inflation, Rising Interest Rates, Market Turmoil, By Donald E. L. Johnson.
Ways to use StockRover.com to analyze stocks
Calls vs Puts Options: What’s the Difference?
A video on how to place options trades on TDAmeritrade.com’s Think or Swim trading platform.
Steven Fiorello has a bullish writeup on Kinder Morgan (KMI). https://seekingalpha.com/article/4612940-kinder-morgan-to-benefit-from-natural-gas-production-yields-6-78-percent?mailingid=31880622&messageid=2850&serial=31880622.20508&utm_campaign=rta-author-article&utm_medium=email&utm_source=seeking_alpha&utm_term=31880622.20508
I've owned KMI on and off for 11 or 12 years. When it cut its dividend, I got out at the top and bought back in near the bottom and had KMI called along the way. I'm a bit under water based on my average purchase price, but because I've been collecting dividends and premiums from selling covered calls for a long time, my net debit is well below the current price.
Net debit equals average purchase price minus collected dividends and options premiums.
At the moment, I'm not writing covered calls or selling puts on KMI. The stock isn't very volatile so the prices of KMI's puts and calls are too low to take the risk of having the stock called in my IRA. And I own as much of the stock as I want.
If I didn't own the stock, I would be selling $15 and $16 cash secured puts on it in the hope that the stock would dip to those levels and let me buy at the discounted prices, or strikes.
Callum Turcan has a bullish writeup on XOM. Link: https://seekingalpha.com/article/4612323-why-exxon-mobil-stellar-dividend-growth-idea .