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August Covered Calls Trades On 13 Dividend Stocks Update #1

Stock Picking, Options Trading for Income - Sun Aug 6, 2023

By Donald E. L. Johnson

Cautious Speculator

  • After some huge rallies, many stocks are looking over valued and prime for price corrections, but no one can predict stock prices.
  • Six of my 13 August covered calls stocks look over valued.
  • Stocks with high Barchart.com buy ratings appear to be over extended and ready to correct.

It doesn’t look like any of this months covered calls trades will be called.

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

To date, I’ve done 13 covered calls trades on 13 stocks I own, including my July 31 sale of covered calls options on Kinder Morgan (KMI) . That KMI $0.06 options premium looks too small to trade, but it represents a 4.82% annual return on risk (ARoR). Add that 4.82% options premium to the 6.66% annual dividend yield on the cumulative net debit and you have an ARoR of 11.6% in an IRA account. ARoR assumes a trader can get the same results on the same kind of trades every month in a year.

To get a taxable equivalent ARoR, multiply your effective tax rate times the 11.6%. Thus, 11.6 times 1.15 equals 13.34% and 11.6 times 1.35 equals 15.7% when the effective federal income tax rates are 15% and 35%.

Caryle Group (CG) , Cisco Systems (CSCO) , Kimberly-Clark @KMB, Kinder Morgan (KMI) and Kroger @KR are trading below their fair value estimates, according to this StockRover.com table.

Devon Energy Corp. (DVN) , Merck & Co. (MRK) , J.M. Smucker Co. (SJM)  and Exxon Mobil Corp. (XOM) are trading above their estimated fair values. One site’s fair value estimates are one site’s estimates because each publisher of fair value estimates uses different discount rates and other assumptions when they calculate fair values. There is no fair value estimate for Southern Co. (SO)  on StockRover.com.

CG sports a 56% buy rating that is looking weak on Barchart.com. CSCO’s 100% buy rating also is looking weak. Stocks with 100% buy ratings look likely to correct because their recent bull moves appear to be over extended. Proctor & Gamble Co. (PG)  has an 88% buy rating that is weakening, and Dow Inc. (DOW)  has a weakening 32% buy rating.

I own these stocks because they pay good dividends. It appears that this month’s covered calls trades on these stocks will generate 12.37% annualized returns on risk if they aren’t called. None of these trades look like they’ll be called. That is, this month there probably not be any sales of the stocks with capital gains.

MRK covered calls expired on 8.4.23 and will be rolled over this week to a trade that expires on 8.25.23. Watch the comments section where I’ll report the trade.

I may buy back the calls on CG and DVN this week and roll the trades over to late August or mid September expiration covered calls positions. This would hike my August covered calls options premiums returns on these stocks.

This table shows how the August portfolio stocks have performed during the last month, three months and 52 weeks.

Between my portfolio updates, I report my thoughts and trades in the comments section of this and other posts. When I do trades, I announce them in the comments section.

I respond to comments on the comments section where readers’ comments are posted. That is, if you have a question about this article or other comments, I'll discuss your questions with you in the comments section below this article.

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On the date of publication, Donald E.L. Johnson had a position in: CG, CSCO, DOW, DVN, KMB, KMI, KR, MRK, NEM, PG, SJM, SO, XOM. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.