Seeking Alpha comment by Double Dividend Stock 1/14/2011: VZ Calls

http://seekingalpha.com/user/191203/comment/1407670

Reply to Double Dividend Stock article posted on 1/14/2011.

Your scenarios provide for no up-side. I wonder if in the long term you'd be better off with a more balanced approach.

Example: VZ at $35.46 (Friday's close).
Sell Jul2011 $39 covered call for $.52.
You collect 2 dividends ($.975) so your annualized income with option premium is 8.5%. Stock needs a 21% CAGR to reach $39 by 7/16/2011.
Total return if called is 14.2% (31% annualized).

Nice thing about VZ is that with dollar interval options you can chose your balance between income and upside.

John
No position in VZ
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Additional note:
Using VZ $38 you'd get a little more upside potential than income.
Using VZ $37 you'd get a little more income that upside potential.

Some historical examples of long term covered calls for income

Fields: Symbol, Date Option Sold, Stock price when option sold, Expected Dividends, Strike Price, Premium received, Annualized return if called.

Syb DtOptSld SPwos Divi. Exp Date StrPrc OptPr ARIC

ABT 11/23/09 53.80 $1.60 1/22/2011 $65.00 $1.42 22.9%

DEO 10/19/10 72.93 $ .95 4/16/2011 $80.00 $1.10 27.6%

JNJ 12/ 4/09 64.90 $1.96 1/22/2011 $75.00 $1.26 18.2%

MSFT 10/23/09 29.00 $.65 1/22/2011 $35.00 $1.00 21.3%


USB 10/22/09 25.05 $.45 1/21/2012 $35.00 $2.64* 20.9%

* NOTE: Originally sold 1/22/2011 $30 for $2.12 (closed for $.07) but rolled this to 1/21/2012 on 12/16/2010. New option for $.69 with $35 strike.