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3 Income-Generating Covered Calls on Blue-Chip Stocks

Use options to generate income on quality stocks, at low risk

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ko-covered-callsCoca-Cola (KO) is a great stock to own for the long haul. While concerns about sugar content will turn some off, people will be drinking something from Coke’s enormous line of beverages until the end of the world.

KO doesn’t even report earnings until next February, but it’s a rock-solid company that is very unlikely to experience some kind of catastrophic collapse, nor is it likely to rocket too far up over the next couple of months.

In this case, with the stock trading just above $40, you can sell the Jan 2014 $40 call for 77 cents. That’s a 1.9% return over eight weeks, or about 13% annualized. You also get a 0.7% dividend payment at year’s end (you still collect dividends as long as you own the underlying). Sure, Coke might end up above $40.77 by then, and then there’s nothing stopping you from buying the stock at that price. But you won’t lose anything if you do, and owning this company at that price is hardly a bad thing. After all, you own it at roughly $40 … so why would $40.77 be overpaying?

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