As dividend yields and interest rates dropped in recent decades, income investors looked for ways to generate cash flow from stocks. Selling (“writing”) covered calls is one strategy that has gained attention.
It is certainly a conservative options strategy that most income investors think they should do. The math is compelling.
Here’s how it works. We would buy a dividend stock like Exxon Mobil (XOM) for its $0.87 per share quarterly payout (a 6% yield). Then we would write a covered call with a “strike” price just above the stock’s current level.
For example, XOM trades below $60 as I write.… Read more