Covered Calls on Home Depot (HD)
Home Depot (HD) might not initially be thought of as a “forever hold” stock, but ask yourself this question: When you think of hardware, what other store comes to mind? Other than Lowe’s (LOW), I bet very few others came to mind. Frankly, both would qualify in my mind as “forever holds.”
Covered calls work very well in both of these cases.
HD stock trades at $78.06. The June 27 $78 calls are selling for $1.34. That’s a 1.7% return in roughly five weeks, or a 17.7% annualized return. LOW stock is trading at $45.17, with the June $45 calls selling for $1.18. That’s a 2.6% return in about four weeks, or a 33.8% return annualized.
Why the difference? Lowe’s is about half the size of Home Depot, and its stock is a bit more volatile. That contributes to a higher premium. I prefer Home Depot because of this.