4 Blue Chip Dividend Stocks for Covered Calls Trades

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

• IBM, CSCO, JPM and MRK are good dividend stocks with Barchart.com buy ratings.

• They all have liquid call options for options trades and options premiums income investors.

• Two covered calls trades for each stock are shown below.

Sixteen Dow Jones 30 Index (DJIA) have bullish buy ratings at Barchart.com.

The strongest buys are Apple Inc. (AAPL), Intel Corp. (INTC), JP Morgan & Co. (JPM) and Microsoft Corp. (MSFT).

The four highest yielding dividend stocks that are buys are International Business Machines (IBM), Cisco Systems Inc. (CSCO), JPM and MRK & Co. (MRK)

For dividend stock investors who trade covered calls and cash secured puts for additional options premiums income, these blue chips may be attractive buy/write candidates because they have bullish momentum.

Some investors may want to wait for these stocks to dip before doing the trades on this watch list, which is shown for educational purposes. This is not trading advice. For more examples of my covered calls trades see my last article, June Covered Calls Portfolio Update #2.

IBM Covered Calls

An investor can buy IBM for about $138.04 a share, or $13,804 per 100-share call options contract. Then the investor can sell IBM 7.21.23 $140 calls for about $3.05 per share.

In addition to the 4.83% annual income, the investor would get about a 21% annualized return on risk (ARoR) on the 36-day trade. ARoR assumes the same kind of trade with the same results can be done eight times in the next 12 months.

The delta on this option is .24, which indicates that there is about 24% probability that it will be called. The probability that it will close out of the market (OTM) is about 60%.

Someone who owns the stock at a lower or higher price and wants to reduce the risk of having it called could sell IBM 7.21.23 $145 calls for about $1.36, or about a 9.7% ARoR. The delta on this trade is 0.12 and the OTM probability is about 78%.

CSCO Covered Calls

A trader could buy CSCO for about $51.56, or $5,156 per 100-share call option contract. He could sell CSCO 7.21.23 $52.50 calls for about $0.53 per share, or a 10.24% ARoR. The delta on this trade is .37 and the OTM probability is about 65.6%.

Or he could sell CSCO 7.21.23 $55 calls for about $0.09 a share, or a 1.82% ARoR, which doesn’t look very attractive. The delta on this trade is 0.09 and the OTM probability is about 91.8%. CSCO’s dividend yields 3.07% annually.

JPM Covered Calls

An income investor could buy JPM for about $142.46, or $14,246 per call option. He could sell JPM 7.21.23 $145 calls for about $2.21 per share, or a 15.31% ARoR. The delta on this trade is .40 and the OTM probability is about 62.2%.

Or he could sell JPM 7.21.23 $150 calls for about $0.85 a share, or a 5.85% ARoR, The delta on this trade is .20 and the OTM probability is about 81.8%. JPM’s dividend yields 2.82%.

MRK Covered Calls

An income investor could buy MRK for about $109.14, or $10,914 per call option . He could sell MRK 7.21.23 $110 calls for about $2.60 per share, or a 23% ARoR. The delta on this trade is .48 and the OTM probability is about 54.8%.

Or he could sell MRK 7.21.23 $115 calls for about $0.80 a share, or a 7.27% ARoR, The delta on this trade is .22 and the OTM probability is about 79.7%. MRK’s dividend yields 2.65%.

It always is better to buy several stocks and write calls on them to diversify a covered calls portfolio. Covered calls trades work for investors with enough cash to do the trades. You also have to be willing to take small short term gains or losses.

I own MRK and I’m short MRK 6.30.23 $116 covered calls.

LINKs:

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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.