Covered call writing can be beneficial to us in a variety of circumstances. This article will highlight how this strategy can be implemented to create a dividend-like cash flow for stocks that currently offer no dividend income. This can be particularly useful for those who will only purchase dividend stocks and miss out on other great stock opportunities. On August 30, 2019, Paycom Software Inc. (NYSE: PAYC) boasted elite fundamentals and technicals but generated no dividend income. Let’s see how we can create a dividend-like cash flow using covered call writing.

Fundamental review using IBD’s SmartSelect screen: Elite results

fundamental analysis for covered call writing

PAYC: Elite SmartSelect Rankings

Technical analysis for PAYC: Bullish price chart

technical analysis for covered call writing

PAYC: Price Chart as of 8/30/2019

Achieving an annualized 4% dividend-like return

With PAYC trading at @254.10, a 4% annualized dividend yield would generate $10.16 per-share. This would calculate to 4 quarterly cash-flows of $2.54 per-share. We would select out-of-the-money strikes on months when earnings are not due out.

Option chain (3-week expiration) for PAYC on 8/30/2019

option selection for covered call writing

PAYC Option Chain as of 8/30/2019

At this point in time, selecting the $270.00 strike for a 3-week return and still allowing share appreciation from $254.10 to $270.00 will meet out goal. Three more similar trades per year would meet our target of a 4% annualized return.

Discussion

Covered call writing can be crafted to generate a dividend-like cash-flow. It involves making only 4 out-of-the-money trades per year in months when earnings reports are not due for publication. This allows investors to purchase stocks they may have otherwise avoided because of the lack of a dividend distribution.

Market update; Republished from this week’s blog commentary

Market Analysis from 2/28/2020 Blog Commentary

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Upcoming events

1. Tuesday March 10, 2020 Long Island Stock Traders Meetup Group

7 PM – 9 PM

Plainview- Old Bethpage Public Library

Covered Call Writing Blue-Chip Stocks to Create a Free Portfolio of Large Tech Companies

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4:30 ET

Covered Call Writing to Generate Monthly Cash-Flow:

Option Basics and Practical Application

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