Defending Your Dividend Stocks With Covered Calls

With the recent choppy market action, you may be wondering how best to protect your gains, without abandoning your income-producing, dividend paying stocks. Selling covered calls offers you another income stream from your stocks, in the form of option premiums. This week we'll walk through covered call trades for three dividend stocks from our High Dividend Stocks By Sector Tables. Two of these stocks, Abbot Labs (ABT) and Procter & Gamble (PG), are Dividend Aristocrats: Financials: Covered Calls (Expiring Jan. 21, 2012): (We'll use a one contract sale in our examples, for simplicity's sake. Each call options contract corresponds to 100 shares of the underlying stock.) ABT covered call trade: 1. Buy 100 shares of ABT at $52.40. 2. ABT closed at $52.40, and you'd "sell to open" a Jan. 2012 $52.50 call option, "at the money", i.e., close to the stock's current price. You receive a premium of $2.17/share,... Read more