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Hedge These 3 Blue Chips With Covered Calls

LEAP covered calls can hedge an overbought market

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Hershey (HSY)

hershey-hsy-stockHershey (HSY) is also a strong choice. This is a world-class brand that is known all over the world, and has expanded well beyond chocolate!

As I write, HSY stock trades at $95.79, and the May 2014 $95 Calls are selling for $5.38. First of all, you get a 5.66% premium, which you’ll note is much larger than Philip Morris’ despite only selling about 12% higher. The reason for the higher premium here is the smaller dividend of 2%, or $1.94 (97 cents is all you’ll get since HSY stock will pay out two dividends by May).

In this case, you are protected down to $89.44, or 6.7%, because you get that dividend since you haven’t formally sold the stock. 6.7% is accounting for a pretty significant downdraft! And furthermore, should Hershey stock ends at $95.79 come expiration, you still will have earned that 6.7%.

For the deal to be a loser for you on the upside, the stock will have to close at $102.14.

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