Investors should know a covered call is an interesting investment strategy. With most stocks, you can buy and sell option contracts, which are leveraged positions — one option contract represents 100 shares in said company. So, typically, options trading is a riskier alternative than just buying shares in a company. But, they can also offer much greater returns.
In basic terms, options contracts are either calls or puts, and you can buy or write (sell) those contracts. Calls are for investors who believe a stock will rise within a certain period. Puts are for investors who believe a stock will fall within a specific time period. Each contract has an expiration date, which could be any longer from the day of the contract purchase or more than a year away. Options trading is risky; investors should consider the risks and benefits thoroughly before purchasing option contracts.
Covered calls are a strategy within options trading in that investors can sell one call option for every 100 shares in a company they own and make a premium — immediately realizing gains. No matter what happens, the investor will keep the gains, which is very appealing. But, this is a strategy for investors if they believe the stock price will remain unchanged until their option’s contract expiration date. Because if the stock price moves too far in one direction, the investor will be forced to sell those 100 shares they put up as collateral for the ability to receive the premium.
Below, I will discuss three stocks that are superior to this strategy. They are stocks with high options volume and aren’t massively expensive, so investors can reasonably own over 100 shares.
Ford Motor (F)
Ford Motor (NYSE:F) headquarters is in Dearborn, Michigan. It is a vehicle manufacturing company that develops and produces Ford trucks, vans and SUVs. The company also sells Lincolns, which is Ford’s luxury car brand.
Over the past year, Ford has seen its share price fall by 11%. That has been partly due to the issues surrounding the UAW strike, which began on September 15. As of October 25, a tentative deal has been reached that includes pay raises for UAW workers that Ford employs.
Last July, Ford reported earnings for the second quarter of 2023. It stated total revenue grew by 12% and net income more than tripled compared to the second quarter of 2022. The company also reported that its Ford Model E, a line of electric vehicles, grew by 39% in revenue within the same time period.
Ford Motor is an exciting place with the issues surrounding the UAW strike that, even after an agreement, may continue to affect the company in the future. The company expects to release its third-quarter earnings report on October 26 post-market. Investors are keeping a close eye on Ford.
Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD), located in Santa Clara, California, is a semiconductor company that manufactures microprocessors and graphic processing units for personal computers and data centers.
Over this past year, AMD has seen a 64% rise in its stock price. A considerable interest for investors is in generative AI and cloud computing, which AMD, along with other similar companies, is jockeying for greater market share. The company recently announced the acquisition of an open AI software company called Nod.ai. AMD hopes to improve its position within the AI space with this acquisition. The company is expected to release its third-quarter earnings results for 2023 on October 31 after market close.
Coca-Cola (NYSE:KO), headquartered in Atlanta, Georgia, manufactures, markets and sells beverages domestically and internationally. Its products include Coca-Cola, Diet Coke, Sprite, Fanta, Dasani, Minute Maid, Fuze Tea and Topo Chico.
Since last October Coca Cola’s stock price has fallen by 6%. It reported earnings for the third quarter of 2023, which stated 8% growth in overall revenue and an EPS increase of 9% to $0.71 per share.
Coca-Cola also carries a solid dividend ratio of 3.28% annually. Its most recent dividend payment to investors is $0.46, payable on December 15.
As of this writing, Noah Bolton did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.