July Covered Calls Trades on Dividend Stocks Update #3
By Donald E. L. Johnson
Cautious Speculator
- The Dow is down 3.73% over the last five trading sessions.
- 17 Dow stocks have buy ratings, but most of their bullish trends are weakening.
- I rolled my covered calls on Southern (SO) into July.
- Five of the 14 July portfolio stocks are up year to date. Seven are up over the last month.
Dow Jones Industrials stocks are trying to break above last November’s highs. Dow Industrials SPDR (DIA) , the ETF that tracks the DJIA30 stocks, closed Friday at $337.43. That’s below last November’s $348.22 high and last September’s $286.22 ow.
Click on images and zoom in for better views.
Seventeen of the 30 Dow stocks have buy ratings that range from 8% buy to 100% buy ratings on Barchart.com. Barchart tracks 13 technical indictors.
Five of the 30 DJIA30 stocks are 100% buys. They are Apple Inc. (AAPL) , JP Morgan Chase & Co. (JPM) , McDonald’s Corp. (MCD) , Microsoft Corp. (MSFT) and Visa Inc. (V) . I sold puts on Microsoft last week and will cover that in an update on puts trades.
Buy ratings are important, but traders also look at the strength of those indicators. Thus, of the 17 buy rated stocks, Dow Inc. (DOW), is the only one with a strengthening 50 day-moving-average direction. Merck & Co.’s (MRK) 50-day moving average bullish movement is rated “strongest.” See the column on the far right.
Another 12 DJIA30 stocks have buy ratings ranging to 88% from 8%.
The rest of the index’s stocks have sell ratings ranging from 32% sell to the five that have 100% sell ratings. They are Amgen Inc. (AMGN) , The Travelers Companies Inc. (TRV) , Chevron Corp. (CVX) , UnitedHealth Group Inc. (UNH) and Walgreens Boots Alliance (WBA) .
Friday’s four winners in my July covered calls portfolio were Devon Energy (DVN) , Lincoln National Corp. (LNC) , Dow Inc. (DOW) and Exxon Mobil (XOM) .
Here is how the July portfolio stocks have performed year to date and during the last 12 months.
My covered calls on Southern Co. (SO) expired on June 30.
On Friday, July 7, I sold SO 7.28.23 $73 strike covered calls for $0.36 a share, or $36 per 100-share contract. The return on risk will be 0.51%, or 8.81% annualized if I do the trades that get the same RoR 17 times a year.
I sold SO calls that have a higher risk of being called with a 0.20 delta. I’m bearish and doubt that SO will be called.
That gave me a higher ROR of about 8.8% annualized. I also sold the calls at the $73 strike so that if the shares are called, I’ll make about a $2 per share profit on the stock plus the collected options premiums and dividends. The cumulative net debt after collecting dividends and puts and calls options premiums is $69.27. After I sold the calls, I sold SO 7.28.23 $68 strike puts for a 7.38% ARoR.
Based on the $69.27 net debit cost of SO, the annual dividend yield is 4.04%. Goldman Sachs recently added SO to its conviction buy list. Year to date, I’ve done four SO covered calls trades and four SO cash secured puts trades. I’m still waiting to sell calls on Cisco Systems Inc. (CSCO) , which I recently bought.
Remember, I pick stocks and ETFs that pay relatively high dividends that can be enhanced by selling covered calls and puts for options premiums income. Every month, I sell puts and calls for income regardless of what the markets are doing, but when volatility increases my uncertainty, I become more cautious and do fewer and less risky trades. All stock and options trades are risky. So is life.
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On the date of publication, Donald E.L. Johnson had a position in: DOW. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
