Covered Call Trade Idea with Monthly Options - Generate $50/mo from this Bank Dividend Stock

This is not a trade recommendation, this is a trade idea. I'm not a financial advisor, anything written here should be taken with a grain of salt. I take no responsibility If you will decide to invest

Here at OptionsBrew.com, we like the idea of selling options on "good" dividend stocks, preferably from the Dow Jones list, but we make exceptions, and one such exception is People's United Financial, Inc. or PBCT which is the so-called dividend aristocrat stock

I like PBCT for many reasons - it is the so-called dividend aristocrat stock, the company has raised its dividend for the last 13 years.

PBCT has a reasonably good dividend (above 6%), and last but not least PBCT is a good stock to sell options (puts and calls). 

PBCT Stock Dividend Data
PBCT Stock Dividend Data. Source: Dividend.com

I've been buying PBCT for our daughter's stock portfolio since October 2019,  but unfortunately we lost our 100 shares of PBCT in March because of the Margin Call, and now we are in the phase to build back our lost shares. It will take some 3-4 months before we will be able to acquire 100 shares of PBCT and start selling covered calls, but now I decided to look what could we get from selling monthly options on PBCT, and results are quite impressive.

Generate monthly income selling covered calls on PBCT stock

On May 22, 2020, you could buy 100 shares of PBCT stock spending $10.86 per share or $1,086, and simultaneously sell out of the money June 19 expiry covered call at the strike price of $11 for about $0.5. That gets you $50 and makes about a 4.6% return in less than 30 days. About 55.52% annualized. Break-even: $10.36

Calls option chain for PBCT. Source: Finance Yahoo
Calls option chain for PBCT. Source: Finance Yahoo

If PBCT stock closes below $11 on June 19, you keep the premium and start over.

If the stock closes above $11, your stock gets called away, but you keep premium $0.5 + realize value gain $0.14 ($11-$10.86) from selling stock higher than you bought. Total $64 or about 5.89% potential income return in 30 days.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put and get stock back.

Remember, you are selling one contract, 100 shares of PBCT stock, make sure you have 100 shares to sell if called away.

The biggest risk  - involving in covered call strategy - the stock price could fall below our buy price and stay there for months/years. 

PBCT is a decent dividend buy - it has risen its dividend for the past 13 years, and currently is paying $0.72 per share anualized, thats about 6.6.% dividend yield (before tax). We think that selling options on a good dividend stock is a win-win.