Jeff Swensen/Getty Images News
Jeff Swensen/Getty Images News
Certain stocks just command high options premiums. Whirlpool Corp. (WHR) has been such a nice run, and Qualcomm (QCOM) is always giving back. Alcoa (AA) is in the category of money machine, but it's not a dividend machine.
I am basically chasing Alcoa. I buy and it goes higher. I sell a call and the shares are assigned. The dividend yield is not big enough or of enough duration that I want to hold AA as one of my dividend machines. So, I work it for call income.
The above fundamentals reinforce the use of my using this chunk of money to create income, not build a portfolio around AA. I want to keep the risk as low as possible, and therefore, I am picking calls with big premiums, short durations, and strike prices highly likely to be assigned. In this case, I picked a $95 strike and an April 14, 2022 expiration, for a premium of $2.65.
This is a 12-day call. I am hoping AA will reach the $95 mark and my shares are taken and I can book the whole 6.96%. If not, I will keep the $2.65 premium and decide what to do with the shares at that time.
These short-term calls do fill the coffers.
Data from Schwab.com and MarketXLS
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