Boosting Income with Covered Calls: A Bearish/Bullish Outlook on Adobe Stock
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Bearish/bullish outlook - writing covered calls
For Adobe stockholders, writing a covered call might offer an avenue to earn additional income, leveraging the stocks you already own.
Strategy: writing covered calls
- Trade setup:
- Action: SellToOpen
- Quantity: 1
- Expiry: 22-Sep-2024
- Strike: 575
- Premium: $6.10 (per share)
- Premium and risk:
- Premium received: $6.10 x 100 (per contract) = $610
- Max risk: Moderate (missing out on potential upside if Adobe's stock price surges past 575)
- Max reward: $610 (retained premium if Adobe stays below 575 at expiry)
- Breakeven point: Current stock price – premium received = $541.07 - $6.10 = $534.97
- Yield:
- Yield over 10 days: 1.13%
- Annualized yield: 41.25%
- Comparison with buying stock: If you are an Adobe stockholder, this strategy allows you to earn a yield of 1.13% over 10 days, which equates to an annualized yield of 41.25% if replicated successfully throughout the year, by agreeing to sell the stock at a predetermined price within a ten-day period.
