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Thoughts on covered call income

Stock in scope: GILD


A couple thoughts on the income potential of writing covered calls on stocks one may own:

  • GILD stock currently trading around $76.50 per share; therefore, 100 shares = $7,650 initial investment

  • The premium payouts for the 7/17 (7 business days) expiration option contracts are illustrated below:

  • Per the charts above and table below, in 1 week basically, one can sell the $77.50 strike price and take in $118 or 1.5% (i.e 118/7650). As a note, this option leaves the seller with an additional $1 per share of stock price appreciation they can capture (i.e. 77.50 - 76.50) from now until call expiration. The $1 per share equates to an extra $100 or 1.3%.

  • Assuming ideal outcome; in one week stock would go to $77.50 per share; netting the seller 2.8% in one week.

  • Another concept to consider, if one could maintain a similar premium captured every week, they could gain (118*52) $6,136 over the course of a year, just in premiums. This equates to a roughly 80% return just on call premiums.

  • Many scenarios to consider, but the returns always look enticing.

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