It’s the holiday season and that means coming up with cash to buy everyone you love ugly Christmas sweaters, ridiculous items they don’t need and the oddball gift nobody knows what to make of.
Fortunately, the options market created covered calls for you to make additional money off investments you may already hold to feed that Christmas fund.
With covered calls, you take a stock that you own and sell the right to other investors to buy that stock from you at a specific strike price on or before a specific contract expiration date. You receive a payment for the sale called a premium.
If the stock does not go above that strike price and stay there by expiration, your stock will not be sold. You keep it and the premium you received.
Here are three covered call trades on widely held stocks that will net you $1,000 this month.
Microsoft Corporation (NASDAQ:MSFT) is the second most widely held stock in the market, and it provides some very generous premiums for selling covered calls.
It also has expiration dates that occur weekly, so you have great flexibility in regard to how far out you want to sell your contract. The further out you sell it, the more time premium is contained in the sale price.
MSFT stock closed at $82.78 on Wednesday. You want to sell covered calls that expire before MSFT reports earnings between Jan. 24 – 29. That’s because the earnings report could cause MSFT stock to move in great leaps in either direction, and you want that contract to have been closed out.
Consider selling two of the 19 Jan $82.50 covered calls for $2.20. That will net you $440, and if called away, you’ll lose about $56 for selling below the current price.
Apple Inc. (NASDAQ:AAPL) is doing extremely well, and may get a wonderful boost if the tax cut passes. It will allow AAPL to repatriate some $215 billion from overseas into the U.S. That means it will likely boost its dividend and buyback.
In the meantime, it continues to generate fantastic free cash flow, is making a mint on the bottom line, and there’s no sign that this will change.
Apple is also diversifying away from the iPhone so the likelihood of missing earnings numbers is reduced as it moves more and more into services. Like MSFT, Apple reports in late January, so you want to look at the Jan. 19 expiration date.
AAPL closed at $169 on Wednesday. I suggest selling two of the 19 Jan $175 covered calls for $2.40. That not only gets you $480, bringing your total to $920, but gives you a $6 buffer before AAPL could get called away.
J.P. Morgan Chase & Co. (NYSE:JPM) remains on solid footing as one of the nation’s premier financial services companies. It is extremely well-diversified, has a terrific balance sheet and is pretty much killing it on the bottom line with $22 billion in net income in FY16. It is on track to beat that number, with $18.8 billion through the first nine months of the year.
JPM has investment banking, commercial banking, consumer banking, and wealth management divisions that have exceptional marketing and skilled advertising. It is difficult to go wrong with one of the great financial stocks on the market.
JPM stock closed at $104.93 on Wednesday. You can sell a near-term option here. Sell two of the 5 Jan $108 covered calls for $1.17. That will bring your total to $1,154.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.