20 November 2023 Covered Calls Trades Yielding 13.3% to15.9% Update #2

Small and large dividend stock and ETF investors can use covered calls and puts trades to generate monthly income from options premiums and options trading

By Donald E. L. Johnson

Cautious Speculator

• Selling Amazon covered calls and cash secured puts produced about 30% annualized returns on risk.

• November covered calls trades are generating about 13.3% in call options premium AROR. Add in the average dividends and the average AROR is about 15.9%

• There probably will be some more covered calls trades this month. Watch the comments.

November 2023 covered calls trades’ options premiums are generating 13.3% average annual returns on risk, or 15.9% when potential annual dividends are included.

Please click on images and zoom in for better views of the data..

The month’s 20 trades involve 17 stocks and one exchange traded fund, the S&P Biotech (XBI).

On Nov. 3, I explained how I was trading covered calls and cash secured puts onAmazon.com Inc. Here is a followup.

As I hoped, (AMZN) was called on 11.3.23 with a 0.62% gain, or 32% annualized and a 13.79 AROR in options premiums on the seven-day trade. AMZN cost $136.16 and was called at the $137 strike price. The net debit on AMZN after collecting $4.61 per share in covered calls options premiums and $2.89 in puts premiums was $129.25. Since AMZN was called, I’ve sold AMZN November 17 and 24 expiration cash secured puts three times for another $2.89 per share in puts options premiums. That will bring my net debit on AMZN to $128.60 per share ($12,860) per 100-share options contract.

Put another way, since Sept. 9 when I bought AMZN for $136.16 and started selling covered calls on it, I collected $7.50 per share in options premiums, or $750 per 100-share options contract on AMZN puts and calls. That amounts to a 5.5% RoR. Add the 0.62% gain and the total RoR as of Nov. 24 will be 6.12% in 76 days, or an ARoR of about 30.6%. ARoR assumes that the same kind of trade can product the same results in five 76-day trades over the next 12 months.

As long as AMZN is volatile enough to produce good returns on risk, I’ll keep selling AMZN cash secured puts options every 14 to 32 days, depending on how the stock and the markets are acting. Between 9.19.23 and 11.3.23 when it was called, I sold weekly calls on it seven times. AMZN looks over priced to me and I don’t have a buy price on it. I just trade the options for premium income.

Danaher Corp. (DHR) 11.3.23 $192.50 covered calls also were called. My cost was $216 a share, or $21,600. My 10.88% loss on the trade was $23.50 a share, or $2,350 per option contract. I collected only $2.95 in puts and calls premiums on DHR and no dividends. That lowered my actual loss on the trade to $20.55 a share, or $2,055 on a 100-share options contract.

When I did the 7-day trade on Oct. 30, DHR was at $185.42. The point and figure price objective was $191.99. On Barchart.com, DHR was rated a 100% sell. That meant that the 13 momentum metrics tracked by Barchart said sell. DHR’s relative strength was a bearish 38.

But analysts rated DHR a strong buy. The analysts’ average target price was $251. Morningstar.com rated DHR a 4* stock with a fair value estimate of $243. With the markets looking shaky, I figured a one-week covered call trade at the $192.50 strike was pretty safe.

That week DHR popped and got called. I pocketed a tax loss. Fortunately, I had diversified my risks with my AMZN trade which handed me a $750 profit. I more than covered the DHR loss with options premiums generated by other puts and calls trades that expire this month.

This again shows the benefit of doing several small covered calls and puts trades instead of putting all of your money behind one or two trades a month. At this point, my realized gains on covered calls trades are slightly less than my realized and unrealized losses on covered calls trades.

I plan to take more tax losses on Paycom Software Inc. (PAYC) before the end of the year. D. R. Horton (DHI) looks like it will be called on 11.17.23. DHI cost $120 and will be called at $115 unless it sinks before expiration. The net debit on the stock is $114.80, which means I’ll make a $0.20 a share profit on the trade because I sold DHI puts and covered calls and collected a $0.25 a share dividend on Nov. 4. To avoid a tax wash in the eyes of tax collectors, I won’t sell DHI for at least 31 days after the stock is called.

Campbell Soup (CPB) is in an IRA, which means you don’t do tax loss trades in tax sheltered accounts. But I may take the loss on that stock and put the money into puts trades that have more active and better income generating puts and calls and are more likely to be profitable over the long term. CPB is a defensive food stock that is not very defensive.

Hopefully there will be more gains than losses before yearend. But there are a lot of sell ratings on my stocks. I’ll keep selling covered calls on them unless they get called the way DHR did.

Most of these stocks pay dividends that look safe. On a price to cash flow ratio basis, they look decently valued with some potential for gains longer term, depending on the economy and market conditions. AMZN’s PE ratio is a high 54 times earnings, and its price to cash flow ratio at 29 is moderately high.

I respond to comments on the comments section where readers’ comments are posted. That is, if you have a question about this article or other comments, I'll discuss your questions with you in the comments section below this article.

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Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.