One of the most consistent, easiest to understand and easiest to implement option strategies is covered calls.
Investor sell or write a call options over stocks they own in exchange for collecting a premium. 1 call option contract represents 100 shares, so investors can sell multiple call options if they have a particularly large stock holding.
Over time, covered calls have the potential to add extra returns while also decreasing the volatility of a portfolio.
I like to trade this strategy on blue chip, low volatile stocks. This way you can generate a tidy sum from selling the call options and also receive a healthy dividend while you own the stock.
Here are two stocks that meet that criteria:
Verizon Communications Inc. (NYSE:VZ)
Verizon Communications Inc. (NYSE:VZ) has traded between $42 and $55 over the past 12 months and has recently experienced a minor pullback.
Verizon Communications Inc. (NYSE:VZ) is a pure defensive play and with stocks having risen dramatically since the election, it could be time to start looking at defensive stocks again.
The beauty of this stock is that it will experience very low volatility with implied volatility only ranging from 12% to 22% in the past year.
Add that to the fact the stock pays a chunky 4.40% dividend it can be a worth addition to any portfolio.
By combining stock ownership with covered call trading, investors can further boost the income potential from this telecommunications giant.
With the stock currently trading at $52.50, traders could sell an April 21st $52.50 Call for $1.70.
Such a trade would forego any capital growth potential, but would increase the income potential by another 12.44% per annum.