How to Generate $250/mo Selling Covered calls on Dividend Paying Stocks

Selling covered calls is my favorite income-generating technique. I like to sell call options on relatively safe stocks, preferably dividend aristocrat stocks.

4 Trades to Generate $430/mo Selling Covered calls on Dividend Aristocrat Stocks

In today's article, I'm going to talk about selling covered calls on Pfizer (PFE), Intel Corporation (INTC), Ares Capital Corporation (ARCC), and Walgreens Boots Alliance (WBA) stocks.

These stocks are the ones I’m actually buying for my dividend stock portfolio, and as I am at the stock accumulation phase it was just interesting to see what could I get once I would hold at least 100 shares of each.

Without further ado

Generate monthly income selling covered calls on Pfizer (PFE:NYSE) stock

PFE stock price as of July 27, 2021

I must say PFE stock looks a bit overbought to me, and despite I have a few shares with PFE I would think twice before buying at least 100 shares to sell call options on this stock. I would probably go with put options

On July 27, 2021, you could buy 100 shares of PFE stock spending $4,181, and simultaneously sell out of the money August 20 expiry covered call a strike price of $42 for about $0.72. That gets you $72 and makes about 1.72% return in about 24 days. Or about 25% annualized. Break-even: $41.09

If PFE stock closes below $42 on August 20, you keep the premium and start over. If the stock closes above $42, your stock gets called away, and you realize your gains.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $42, remember you have made a premium + value gain. -$4,181+$4,200+$72= +$91. That would be about a 2.17% yield on your initial investment in about 24 days.

Remember, you are selling one contract, 100 shares of PFE stock, make sure you have 100 shares to sell if called away.

Generate monthly income selling covered calls on Intel (NASDAQ:INTC) stock

INTC stock price as of July 27, 2021

On July 27, 2021, you could buy 100 shares of INTC stock spending $5,431, and simultaneously sell out of the money August 20 expiry covered call a strike price of $55 for about $0.93. That gets you $93 and makes about 1.71% return in about 24 days. Or about 25% annualized. Break-even: $53.38

If INTC stock closes below $55 on August 20, you keep the premium and start over. If the stock closes above $55, your stock gets called away, and you realize your gains.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $55, remember you have made a premium + value gain. -$5,431+$5,500+$93= +$162. That would be about a 2.98% yield on your initial investment in about 24 days.

Remember, you are selling one contract, 100 shares of INTC stock, make sure you have 100 shares to sell if called away.

Generate monthly income selling covered calls on Ares Capital Corporation (NASDAQ:ARCC) stock

ARCC stock price as of July 27, 2021

On July 27, 2021, you could buy 100 shares of ARCC stock spending $2,003, and simultaneously sell at the money August 20 expiry covered call a strike price of $20 for about $0.35. That gets you $35 and makes about 1.59% return in about 24 days. Or about 23% annualized. Break-even: $19.68

If ARCC stock closes below $20 on August 20, you keep the premium and start over. If the stock closes above $20, your stock gets called away, and you realize your gains.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $20, remember you have made a premium, but as we are selling at the money strike price, we wouldn’t realize value gain. -$2,003+$2,000+$35= +$32. That would be about a 1.59% yield on your initial investment in about 24 days.

Remember, you are selling one contract, 100 shares of ARCC stock, make sure you have 100 shares to sell if called away.

Generate monthly income selling covered calls on Walgreens Boots Alliance Inc (NASDAQ: WBA) stock

WBA stock price as of July 27, 2021

On July 27, 2021, you could buy 100 shares of WBA stock spending $4,725, and simultaneously sell out of the money August 20 expiry covered call a strike price of $48 for about $0.86. That gets you $86 and makes about 1.82% return in about 24 days. Or about 26% annualized. Break-even: $46.39

If WBA stock closes below $48 on August 20, you keep the premium and start over. If the stock closes above $48, your stock gets called away, and you realize your gains.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $48, remember you have made a premium + value gain. -$4,725+$4,800+$86= +$161. That would be about a 2.98% yield on your initial investment in about 24 days.

Remember, you are selling one contract, 100 shares of WBA stock, make sure you have 100 shares to sell if called away.

The Bottom Line

Selling covered calls on these four dividend stocks right after buying them ($16,340) would generate about $286/mo. That's a potential income return of 1.75% return in just 24 days or 26% per year.

Also, in 2021 you would get about $156 dividend from PFE, $139 from INTC, $160 from ARCC, and $186 from WBA. Combined $641 (before tax) or about a 3.92% dividend yield per year. 

Unfortunately, I don't have a set track record on selling covered calls on these four dividend stocks, as I don't have yet 100 shares from each of the stocks, I'm still using put options to beef up income and acquire these stocks. 

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