4 Energy Covered Call Ideas: National Oilwell Varco, Valero, Schlumberger, Halliburton
In the endless search for yield, a covered-call strategy can be an effective tool to supplement portfolio performance. In addition to finding returns from call premium, I'll try to incorporate higher quality dividend stocks for a little something extra. The guidelines for the covered-call strategy are:
- Generating more than 7% per year from the calls and dividends combined is the overall goal.
- Call should be at least 8% out of the money, to avoid being called away and to give room for underlying movement.
- Targeted expirations will be within 4 months. Optimally calls will be written on the same underlying 3-4 times per year.
- Buying back calls to close before expirations takes place will be taken into account; yields are calculated bid-$0.05.
The picks should be looked upon as yield generators to supplement longer-term equity holdings. The above are only guidelines, however, not rules. Before utilizing the strategy, make sure to study it and know the potential hiccups that may occur.
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