Double Down On Dividends With These 2 Covered Calls

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 21^st $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.

Pfizer Inc. (NYSE:PFE)

Pfizer Inc. (NYSE:PFE) is another stock that will never set the world on fire from a growth perspective, but it does have defensive qualities and pays a juicy 3.94% dividend.

The stock has been trading between $27.50 and $37 in recent times and is currently smack bang in the middle of that range at $32.50.

Implied volatility is currently around 20%, having been as low as 12.5% and as high as 25% in the last year.

Traders wanting to increase the yield from their portfolio could sell an April 21^st $33 call for $0.89 which would add another 10.5% per annum income potential to the holding.

Options trading involves risk and is not suitable for some investors. Check with your financial advisor before making any investment decisions.

Disclosure: I do not currently have any positions in VZ or PFE

About the author: Gavin has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. He likes to focus on short volatility strategies. Gavin has written 5 books on options trading, 3 of which were bestsellers. You can read more from Gavin at Options Trading IQ.