Covered Call Ideas for July Expiration

Covered Call Ideas:

The purpose of covered calls is to slowly collect income on stocks by lowering one’s average cost. It is a good way to put on a bullish bet while minimizing your risk. While it does limit your potential reward, this tool can come in handy for those wanting to invest in a stock but on a pullback rather than at current prices. The names each month will most likely change. However, should I be forced to hold onto the stock past expiration because the covered call expired OTM, I would be comfortable doing so. In turn, I am only choosing names I feel confident about long-term. While there are many names with very attractive premium selling opportunities, especially high-beta tech names, most I would not be comfortable holding long-term as I think valuations are stretched. Below are 5 covered call trades that I like for the next month.

Few things to note:

1. In all trades I am selling ITM options, this is meant to be a very conservative strategy that limits the potential risks. While one could sell OTM calls to increase potential returns, I aimed to find trades where a net entry would be at a support level
2. Should the market fall over the next month most of these will fail. I am only going to look at selling covered calls rather than selling covered puts (for short positions) because this is a conservative strategy and shorting stock can  be very risky
3. In my reasons as to why I like a trade, when I say collect “x” dollars, this is the total one receive minus the strike is ITM.

 

Trade 1: FB July $113 call @$3.10. Buy stock at $114.10. Net cost $111.

Reasons I like this trade

1. Strong support in the 110 area, which means having a cost of $111 is very attractive, given the potential of a bounce at this level
2. Before earnings, so one would be able to have this expire and then initiate another covered call with inflated earnings premiums
3. Collect $2 or around 2% of current stock price, annualized return of 20%.
4. Fundamentally a solid company, one that in the long term I expect to move higher given increasing earnings growth. I would feel comfortable holding this name into earnings

 

Trade 2: AAPL July $95 call @$2.70. Buy stock at $96.17. Net cost $93.50

Reasons I like this trade (almost identical to FB)

1. Strong support in the 92.50 range, so a cost $1 above that is relatively attractive
2. Before earnings, so one would be able to have this expire and then initiate another covered call with inflated earnings premiums
3. Collect $1.53 or around 2% of current stock price, annualized return of 20%.
4. Fundamentally a solid company, one that in the long term I expect to move higher a low P/E and steady earnings growth (albeit less than before but still respectable). I would feel comfortable holding this name into earnings

 

Trade 3: GOOGL July 700 call @$19.00. Buy stock at $707.00. Net cost $688

Reasons I like this trade

1. I do not like GOOGL as much as FB and AAPL but technically there is strong support at 700 (has not broken in months)
2. 700 offers a good pin level and may present another opportunity to sell August calls should GOOGL pin right near 700
3. Collect $12 or around 2% of current stock price, annualized return of 20%.

 

Trade 4: TSLA July 210 call @$14.50. Buy stock at $220.50. Net cost $206

Reasons I like this trade

1. TSLA has not seen low 200s in months and would represent a nice discount to recent highs. Therefore I would be comfortable owning the stock there
2. Have over a 7% cushion which makes this trade more attractive
3. Collect $4 or around 2% of current stock price, annualized return of 20%

 

Trade 5: WYNN July $95 calls @$8.20. Buy stock at $101.40. Net cost $93.20

Reasons I like this trade

1. Big insider buy from Steve Wynn a few weeks ago, which makes me more confident on this name fundamentally
2. Been staying around 100 for a while and I believe dips to support in the mid to low 90s would be bought
3. Collect $1.80 or around 2% for an annualized return of 20%