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Hedge These 3 Blue Chips With Covered Calls

LEAP covered calls can hedge an overbought market

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McDonald’s (MCD)

mcdonald's-mcd-stockOne other play here is McDonald’s (MCD), and it’s instructive because it trades at $95.43, almost the same as Hershey.

The June $95 calls go for $3.85 (4% premium), and the dividend is 3.3%, or $3.24 per share (or $1.62 over the two payments until June). So with MCD stock, we have just one additional month on expiration compared to Hershey, but only a 5.65% total return due to the dividend.

In this case, I’d actually go out to the Jan 2015 $95 Calls and collect $5.40 in premium plus the full dividend, for an 8.95% total hedge (or upside).

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at and follow his tweets @ichabodscranium.

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