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Occidental Petroleum Corporation (OXY), Microsoft Corporation (MSFT), Chevron Corporation (CVX): Cover Calls Attractive with Market High

With the Dow Jones Industrial Average hitting record highs, this has become a market for writing covered call options. Last June, my first article as a blogger for The Motley Fool, “Writing Covered Call Options on Big Oil Could Yield Big Gains,“ detailed the benefits of writing covered call options on Big Oil stocks such as Chevron Corporation (NYSE:CVX) and Occidental Petroleum Corporation (NYSE:OXY). Now that the Dow has surged so strongly with recent weakness showing, Foolish investors should look at writing covered call options on dividend paying stocks such as Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC) to protect gains and generate income.

As I wrote last June, “Writing covered call options entails selling the right to buy shares of a stock you own within a set period of time. This is transacted through a call option of which the option buyer has the right to buy the underlying stock of the contract at a set price. On the flip side, the option writer has the obligation to sell the underlying stock at the contract price upon exercise from the option buyer.”

According to Mike Scanlin of, “Covered calls are an easy and conservative income-oriented investment strategy.” This website provides a calculator for Foolish investors to determine what could potentially be earned by writing covered call options. Utilizing that tool, a Foolish investor owning 1,000 shares each of Chevron Corporation (NYSE:CVX), Occidental Petroleum Corporation (NYSE:OXY), Microsoft Corporation (NASDAQ:MSFT) and Intel could possibly generate substantial income from writing covered call options on each, as shown by the table below.

Call Expiration Date Chevron Occidental Petroleum Microsoft Intel Corporation
April 20 $1190 (12.6%)* $1040 (16.4%) $450 (20.10)
May 19 $1930(10.2%) $1960 (16%) $630 (19.9%)
June 20 $2380 (7.9%) $3500 (11.3%) $800 (15.1%0

Source: (*annualized return)

While those returns are just projections, we know that income can be earned in different ways when writing covered call options. The first is from the actual sale of the covered call option. As about 80% of options are never exercised, this is a very good way to profit from owning a stock since the odds are strongly in favor of the holder getting to keep the stock after the expiration date.

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