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15 December Covered Calls Trades Yielding 22.9% to 26.2%

Stock Picking, Options Trading for Income - Mon Nov 20, 2023

By Donald E. L. Johnson

Cautious Speculator

  • The stock market is giving covered calls options traders opportunities to trade for higher yields if they are comfortable taking higher risks that their stocks may correct (dip) or be called.
  • Amazon continues to be a good covered calls and cash secured puts options stock.
  • This is a good time to look for stocks with bullish momentum and good options volatility and liquidity.
  • Several of the initial 15 stocks in the Denver portfolio expire early in the month and will be rolled over into trades that expire later in the month.

The first 15 covered calls trades that expire in December are yielding 22.9% annualized in calls options premiums. Throw in the average 3.3% annual dividend yields and the total potential annual returns or risk is about 26.2%.

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

Six of the trades expire on Dec. 1 and are likely to be rolled over into later December expirations in 7 to 10 day trades. Nine of the trades expire on Dec. 15 and will be rolled into late December or early January expirations to generate additional options premiums income for the month.

After a reader posted a comment and question about what I’m doing with Inc. (AMZN) , I replied in the comments section:

Today I checked out the site. He had just done an in the money covered calls trade on Amazon. Check out the link to learn how he regularly and successfully sells ITM covered calls. Like this newsletter, his blog is free.

I did my version of his trade: I bought AMZN at $144.96. Then I sold AMZN 12.1.23 $142 covered calls for $4.85 a share. If AMZN is below the $142 strike when the calls expire, I’ll keep the full $4.85 a share in options premiums.

If AMZN dips below $142 and AMZN is not called, my AROR will be about 35%. The net debit on the trade is $144.96-4.85 =$140.11. (If the AMZN calls expire worthless with the stock above the $142 strike, my AROR will be around 15%.)

But before I did this trade, I collected $8.26 in AMZN puts and calls premiums. So my AMZN net debit is $136.70 - $4.85 on today's trade, or $131.85. I think I'll wind up with a positive RoR on all of my AMZN trades.

I may sell some more AMZN puts that will expire next month, depending on what the stock does. It's looking over bought to me.

This month stocks have been rallying. To take advantage of the rally, I am trading covered calls at higher deltas and closer to the money. This strategy increases the probability that some of my stocks will be called with small, short-term gains and with higher returns on risk than I was getting earlier this year. I’ve also searched for several stocks with good bullish momentum. If they dip a bit I’ll consider buying them and writing covered calls on them and also selling cash secured puts on some of them.

As a result of this research, I bought and wrote covered calls on Apple Inc. (AAPL) , AMZN and Bank of America Corp. (BAC) . I started with a list of 19 stocks that are in various portfolios that I follow. Then I narrowed the list down to the stocks with the best point and figure charts price objectives, buy ratings on and ratings by Wall Street’s sell side analysts. If I trade these stocks, I’ll cover them in the next update on the December covered calls trades.

The reason that there are so many sell rated stocks in the December portfolio is that they’ve rolled over since I bought them and started selling cash secured puts and covered calls on them. Some pay very good dividends and I write out of the money calls on them to reduce the risk that they’ll be called before I’m ready to sell them.

Depressed stocks can bottom out and rally quickly. That is what happed to my D.R Horton (DHI) . Another big loser, Intuitive Surgical (ISRG)  will be called Friday at the price I paid for it after staging a big rally this month. I may buy it back and sell covered calls on it. Or I may sell ISRG puts or sell both calls and puts. It depends on what the stock is doing when I decide whether to do the trades, or not. In any case, ISRG is acting like a hot stock again.

I’ve done a few cash secured puts trades, but today was an up day in the markets and I spent the day rolling covered calls trades that expired last week into the December expiration trades shown above. I’ll spend the next few days selling puts.

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On the date of publication, Donald E.L. Johnson had a position in: AMZN, AAPL, DHI, ISRG, BAC, CPB, DUK, GIS, KHC, KMI, KR, PAYC, WBA, XBI, ZBH. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.