SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Increasing Yield Through Covered Calls


When starting out with options, a natural place to begin is with covered calls. It’s a very easy to understand strategy for those that are familiar with stock ownership. The strategy involves buying a stock in lots of 100 shares. The total size will depend on you account size and how much exposure you want to take.

The investor then sells a call option over those shares in exchange for collecting a premium. 

 

One call option contract represents 100 shares, so investors can sell multiple call options if they have a particularly large stock holding. 

 

Covered calls have been shown to outperform pure stock ownership over the long term while also decreasing volatility.  

 

Based on data provided by the CBOE, we can see that BXM (CBOE S&P 500 Buy Write Index) has significantly outperformed the S&P 500 over the tracking period of 1986 to 2014.  

 

image.png 

 

Covered calls work well on blue chip, low volatile stocks. This way you can generate a tidy sum from selling the call options and also receive a healthy dividend while you own the stock. 

 

Here are two stocks that meet that criteria: 

 

INTC

 

Intel has had a tough run of it lately with the trade war having a big impact on the stock price. There are still risk ahead for the chip maker but it seems to have put in a short-term bottom for now.

 

After dropping 27% in April and May, the stock has recovered and is now above a rising 20-day moving average.

 

Conservative traders may want to wait for a successful retest of the 20-day line before making a trade.

 

image.png

 

Volatility isn’t as high as it has been recently, but at 25% for a Dow stock, there is some value there for option sellers.

 

The stock also pays a nice 2.66% dividend so investors can achieve some nice income while they hold the stock.

 

By combining stock ownership with covered call trading, investors can further boost the income potential from this semiconductor stock. 

 

With the stock currently trading at $47.21, traders could sell an August 21st $49 Call for $1.27. 

 

Such a trade would forego any capital gains above $49, but would increase the income potential by another 15.90% per annum. 

 

MMM 

 

3M Corporation is another stock that’s had a tough run lately.

 

This Dow component is another stock that dropped around 27% in the April-May period.

 

Like INTC, the stock has bounced off the low and is holding above a now rising 20-day moving average.

 

MMM pays a very healthy dividend around 3.37% and is a Dividend King, having raised dividends for more than 50 consecutive years.

 

Implied volatility is currently around 25%, having been as low as 15% and as high as 35% in the last year. 

 

Traders wanting to increase the yield from their portfolio could sell an August 21st $180 call for $3.85 which would add another 13.1% per annum income potential to the holding. 

 

Join me for a webinar on Saturday, where I’ll be sharing my market analysis and also looking at more trade ideas such as this.

 

As always, do your own due diligence and trade safe! 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. He likes to focus on short volatility strategies. Gavin has written 5 books on options trading, 3 of which were bestsellers. He launched Options Trading IQ in 2010 to teach people how to trade options and eliminate all the Bullsh*t that’s out there. You can follow Gavin on Twitter. 


Related Articles:

 

What Is SteadyOptions?

12 Years CAGR of 123.5%

Full Trading Plan

Complete Portfolio Approach

Real-time trade sharing: entry, exit, and adjustments

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe to SteadyOptions now and experience the full power of options trading!
Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • The Sell Put And Buy Call Strategy | A Synthetic Long Stock

    The Sell Put And Buy Call Strategy is an example of a synthetic stock options strategy: using call and puts options to mimic the performance of a position, usually involving the purchase of a stock. We saw this when looking at the synthetic covered call strategy elsewhere.

    By Chris Young,

    • 0 comments
    • 57,675 views
  • Long Straddle Option Strategy: The Ultimate Guide

    Straddle Options Definition
    An options straddle strategy is buying (or selling) both a put and call option with the same strike price and expiration date for the same underlying asset, and paying both the put and call premiums.

    By Pat Crawley,

    • 0 comments
    • 58,051 views
  • 7 Helpful Tips To Invest Your Money And Time In 2025

    While many of us would like to not think too much about how much money controls the world, it certainly is a primary motivator for most people in life. Whether you earn to pay the bills or work to succeed in a career you’re passionate about, money is something that can help greatly in making your life more comfortable and enjoyable.

    By Kim,

    • 0 comments
    • 34,688 views
  • Gamma Scalping Options Trading Strategy

    Gamma scalping is a sophisticated options trading strategy primarily employed by institutions and hedge funds for managing portfolio risk and large positions in equities and futures. As a complex technique, it is particularly suitable for experienced traders seeking to capitalize on market movements, whether up or down, as they occur in real-time.

    By Chris Young,

    • 0 comments
    • 24,619 views
  • Short Gamma vs. Long Gamma in Options Trading

    Gamma is one of the primary Options Greeks, which measure an option's sensitivity to specific factors that could affect an option price. Despite traders hyping up several different Greeks and second-order Greeks like "Vanna" and "charm," there are only four primary Greeks that you need to be familiar with to understand options trading.

     

    By Pat Crawley,

    • 0 comments
    • 40,251 views
  • Predicting Probabilities in Options Trading: A Deep Dive into Advanced Methods

    In options trading, the focus should not be on predicting the exact closing price of a ticker on a given date - a near-impossible task given the pseudo-random nature of markets. Instead, we aim to estimate probabilities: the likelihood of a ticker being above a specific value at a certain point in time. This perspective turns trading into a probabilistic exercise, leveraging historical data to make informed decisions.

    By Romuald,

    • 1 comment
    • 10,982 views
  • SteadyOptions 2024 - Year in Review

    2024 marks our 13th year as a public trading service. We closed 136 winners out of 187 trades (72.7% winning ratio). Our model portfolio produced 116.7% compounded gain on the whole account based on 10% allocation per trade. We had only one losing month (of 0.6% loss) in 2024. 

    By Kim,

    • 0 comments
    • 2,690 views
  • The Options Wheel Strategy: Wheel Trade Explained

    The “wheel” trade is variously described as a beginner’s strategy, a combination to exploit features of both calls and puts, and as “perfect” solution to the well-known risks of shorting calls, even when covered. The options wheel strategy is an income-generating options trading strategy that both beginners and experienced traders can leverage for profit.

    By Pat Crawley,

    • 0 comments
    • 63,435 views
  • Why Dollar Delta Will Change Your Trading

    Delta is one of the four main option Greeks, and any serious trader needs to have a thorough understanding of this greek if they hope to have any chance of success in the trading options. If you’re a beginner, you can visit my blog to learn more about understanding option delta

    By GavinMcMaster,

    • 0 comments
    • 32,304 views
  • The 7 Most Popular Cryptocurrencies Right Now

    There are thought to be 20,000 cryptocurrencies currently in existence. While a lot of these are inactive or discontinued, a lot of them are still being traded on a daily basis. But just which cryptocurrencies are most popular? This post takes a look at the top 7 most traded cryptocurrencies.

    By Kim,

    • 0 comments
    • 9,123 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs