July Covered Calls Trades On Dividend Stocks Update #5
By Donald E. L. Johnson
Cautious Speculator
- With a week to go, several covered calls trades on dividend stocks have expired.
- Low volatility generated low options prices, but three trades turned in strong annualized returns on risks.
- Most of the expired trades will or have been rolled into August covered calls trades.
- Several small trades provide diversification that reduces trading risks.
My July covered calls trades on dividend stocks are expiring with nice annual returns on risks and some short term gains so far this month. Three more July trades will expire next week. Last week I opened my first August covered calls trades on dividend stocks. Low volatility reduced returns on risk this month. A few gains on called stocks boosted average returns.
Click on images and zoom in for better views.
So far this month, I’ve collected $670 in options premiums, gains and dividends or about $6,948 annualized per 100-share contract on nine covered calls trades on nine stocks and one exchange traded fund. The average AROR for the 14 equities is 9.97%. Including an average dividend of 4.68%, the AROR is about 14.65%.
Of these trades, three were called on 6.21.23 at small gains. I bought two call options back at profits and rolled one of them into August. Five of the covered calls trades expired with the stock prices below the strike prices, and the options expired worthless.
This table shows the buy and sell rankings for each stock trade and the relative strength of their bullish or bearish trends.
I always do several covered calls trades each month because I want to diversify my risks. You know which trades will be big winners and which ones will hurt you. This month’s winners can be next month’s disappointments and vice versa.
Lincoln National
Lincoln National Corp. (LNC) closed Friday at $27.14. The cumulative net debit was $23.70. My LNC 7.21.23 expiration $25 strike covered calls trade gave me a $0.87 per share or $87 per 100-share contract option premium profit before commissions and fees. The annualized return on risk was 42.4%. That assumes that the same results could be achieved on covered calls trades about 12 times a year. LNC’s dividend yields about 6.63%. I will sell puts on it this week. The stock was at $24.60 when I did the trade.
The bonus is that LNC was called at at $0.43 ($43 per contract) options premiums profit for a 21% ARoR. Thus, the total AROR on the 35-day trade was 63.4%. That was my best cover calls trade of the month so far.
JPM Equity Premium Income ETF
My worst covered calls trade so far this month on JPM Equity Premium Income ETF (JEPI) returned only 2 cents per share after I closed it early so it wouldn’t be called.
What made that JEPI trade a decent trade is that since I closed the JEPI covered call trade, the ETF has gained about $1 a share since I bought back the calls to close the trade. JEPI is at $55.88 and yields about 8% on its monthly dividend. That’s the kind of equity that belongs in a tax sheltered account like an IRA. (The $0.395 dividend plus the ETF’s $1 gain during the option trade, or $1.395 times 12, or $16.74 ARoR would be about a 300% ARoR if the same trade could be done monthly. That’s almost impossible to do, but fun to calculate.)
I’ve decided that trading covered calls on JEPI is a waste of time. I’ll just let it rise and fall with the markets and collect the monthly dividends. JEPI’s 60-month average beta is a low and defensive 0.62.
Dow Inc.
DOW Inc. (DOW) closed Friday at $53.03, well below my DOW 7.21.23 $55 strike covered calls options trade at $0.38 per share, or $38 per 100-share option. My ARoR on the 30-day trade was 8.72%. Its dividend yield is about 5.321% based on the cumulative net debit of $52.62. The net debit, or break even, is the cost of the stock less collected puts and calls options premiums and collected dividends. DOW cost me $53 and was at $53.40 when I did the trade.
Devon Energy Corp.
Devon Energy Corp. (DVN) closed Friday at $52.26. DVN cost me $63.09 and was at $48.93 when I did the trade. The DVN 7.21.23 expiration $55 strike covered call expired worthless. I bought back the calls on Thursday. So I collected $21 per 100-share contract on the trade and the ARoR was 4.19%. Based on the net debit, the stock yields about 4.7%, including the variable part of the dividend. Depending on the investor’s federal income tax effective rate, the taxable equivalent AROR of dividends and options premiums on the trade when the stock is in an IRA is 10% or better.
I also had DVN 7.21.23 $47.50 puts that expired at a profit.
Kimberly-Clark Corp.
Kimberly-Clark Corp. (KMB) closed Friday at $137.15. I bought it for $142.85 and the cumulative net debit is $139.29. It was at $138.03 when I did the trade. My KMB 7.21.23 $145 calls expired at a $38 per 100-share contract profit with a 3.78% ARoR. Based on the cumulative net debit, the dividend yield is 3.39%. I’ll roll the trade into August this week.
Kroger Co.
Kroger Co. (KR) closed Friday at $47.99. My cost was $49. It was at $45.78 when I did the trade. The cumulative net debit is $47.12. My KR 7.21.23 $49 strike calls gave me $17 worth of covered call options premiums and a 4.16% ARoR. Based on the net debit, the stock yields about 2.21%.
Altria Group
Altria Group (MO) closed at $45.60 and was called at $45 per share. The stock was $44.14 when I did the trade. My cost was $44.63 per share or $4,463 per contract and the cumulative net debit was $43.14. So I got a nice 8.41% ARoR on the $36 per contract covered calls trade and a $0.37 per share, or $37 per contract, or 0.83% gain on the 35-day trade. The 8.3% AROR gain plus the 8.4% ARoR premium gave me better than a 16.7% total AROR. I also collected the quarterly dividend, which is 8.72% annualized based on the net debit. Thus, the July AROR on MO was better than 25.4% in an IRA account.
Phillips 66
Phillips 66 (PSX) closed Friday at $105.73, and it was called at my purchase price of $101. The stock was $94.14 when I did the trade. The net debit was $99.02. I collected $38 per contract in covered calls premiums on the 30-day trade. The ARoR was about 19.62%.
J.M. Smucker Co.
J.M. Smucker Co. (SJM) closed Friday at $152.11. The stock was $152.09 when I did the trade. My cost was $151.18. The cumulative net debit is $149.88. My SJM 7.21.23 $155 strike covered calls gave me $130 in options premium income or a 10.32% AROR on the 30-day trade.
Exxon Mobil Corp.
Exxon Mobil Corp. (XOM) closed Friday at $103.89. My cost was $109. The stock was at $104.48 when I did the trade. Net debit is $107.43. The Dividend yield on the net debit is 3.39%. XOM 7.21.23 $110 calls provided a 4.91% ARoR.
This table shows the implied volatility, one month IV rank, options volumes and open interest for each of the stocks in the July portfolio.
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On the date of publication, Donald E.L. Johnson had a position in: XOM. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
