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Intel Covered Call Strategy

I recently fielded a question asking about a trade suggested by a Seeking Alpha article Intel: Dividend Champion in the Making. It’s a basic strategy called a “Covered Call.” You know what a Call is, a Covered Call is simply when you own the stock and sell the call (“sell to open”) indication that you are willing to give up the stock for the strike price, and pocket the premium at the time of sale.

Let’s look at exactly what this trade entails. First, you buy the 100 shares on Intel (INTC), which would cost you $2138. Seeking Alpha suggests selling a Sept $23 call, which closed today bid $0.43. (At the time SA published their article, it was selling at $0.55) With 3 months until expiration, this can be looked at as a 2% boost, or an extra 8% annualized. On the other side of this trade is the buyer who sees a potential high return should Intel trade over $23 within the next 3 months.

Another way to look at this trade is that you are buying Intel at a 2% discount, but then are obligated to sell at $23 should it trade above that. If the stock is called away, your maximum gain is about 9.8%, not bad for a 3 month trade. This strategy can go either way, well chosen stocks might give you the opportunity to sell the call a number of times, but then sold when they run up, and you’d move on. A stock slowly trending sideways over the long term can provide quite the yield to you. Have you ever sold a covered call? Was it a trade you’d make again, or were you sorry you did it?

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