June Covered Calls Portfolio Update #2

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

• Three of the 15 covered calls trades in this dividend stocks watch list look like they’ll be called with small gains on June 16. The other stocks options that expire on June 16 will be rolled forward shortly before or just after they expire.

• The portfolio includes 15 stocks. More may be added before the end of the month.

• Last week, I posted about a dozen updates in the comments section. This week, I’ll start rolling June portfolio positions into late June and July trades. Watch the comments.

Covered calls options on 11 of 15 stocks in my June portfolio will expire after the close of trading on Friday, June 16, 2023. The other four expire June 30.

Click on images and zoom in for better views.

Last week I bought Merck & Co. (MRK), as I reported in the comments section on update #1 last week. The day after I bought MRK for $113.41 and sold covered calls on it, MRK announced that it sued the government over what it called unconstitutional prescription drug price controls. The stock market didn’t like that news. So, I’m under water on that one. After accounting for puts and covered calls premiums I’ve collected on MRK, my net debit is $110.48. The stock closed at $110.71 Friday.

I’ll continue to report trades in the comments section below this week. Last week I posted about a dozen comments and updates. I expect to begin trading covered calls for the July portfolio, which will include most if not all of the June portfolios stocks, later this week and will post a new blog when I do.

Calls on Discover Financial Services (DFS), Lincoln National Corp and Southern Co. (SO) look like they may be called or assigned this week. If they are sold at their strike prices, I’ll pocket the short term gains and sell 30-day to 45-day cash secured puts on them. Selling covered calls and puts are income trades. I like it when my calls are called.

The rest of the expiring options won’t be called. Next Monday I’ll sell covered calls on the uncalled stocks that expire later this month or sometime in July. During the week, I may buy back some of the calls for $0.05 or less and sell new covered calls on some of the calls on my losers. I don’t plan to sell any of my losers. They’re good dividend stocks,. They are trading like dividend stocks in a bear market. I expect them to do well over the next year or two.

Six of the 15 stocks in the June portfolio have buy ratings at Barchart.com. Of 13 technical indicators tracked by Barchart, 24% to 64% of the indicators are signaling that these six stocks are buys. The other nine stocks have 8% to 72% sell ratings. The ratings fluctuate with the stocks and can change quickly.

Wednesday afternoon the Federal Reserve Board is scheduled to announce whether it will raise the Federal funds interest rate or not. The market is anticipating a pause in rate hikes. That could produce a short term rally, but if the Fed stops raising rates and fighting inflation too early and inflation stays high, we may be in for more rate hikes and a deeper recession later.

With presidential elections already looming, politically sensitive members of the Fed are trying to avert a recession that would influence voting. Whether they are setting up the economy and markets for smooth sailing or trouble won’t be known for 12 to 18 months.

As shown in the spreadsheet, the average RoR on the 16 trades in the June 2023 covered calls portfolio is about 1.13%, or 15.26% annualized. That doesn’t include the unrealized price drops and gains on the stocks since I purchased them.

Remember, this is an income trading strategy. We’re not chasing the Big Techs in this portfolio but a lot of dividend stock investors also own Big Tech and other more speculative stocks.

It’s important to diversify risks by doing several small trades instead of one or two big ones. Trading covered calls and cash secured puts requires more liquid capital than buying naked calls or trading vertical puts and calls options spreads. In markets like this, it makes sense by being in cash and money market funds.

I don’t trade or own bonds or certificates of deposit because I don’t want to be locked into long-term trades on relatively illiquid assets.

LINKs:

Home Page. See my more than 100 articles on options trading, stocks and watch lists. If you read several of these articles, you’ll learn how my strategies are meant to work. No guarantees. Links to useful web sites are on the lower right corner of the home page. Scroll down.

Follow @realDonJohnson on twitter.com and FaceBook.com. Or follow me on Substack.com/Notes where my byline is my handle.

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?

How to trade the wheel.

A video on how to place options trades on TDAmeritrade.com’s Think or Swim trading platform.

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.