Covered Call on WFC- Potential income return 2.51% in 3 days

On June 2, 2020, we bought on margin 101 shares of WFC stock (Wells Fargo & Co.)  paying $27.79 per share and simultaneously sold June 5, 2020 expiry covered call at the strike price of $28.

Here at OptionsBrew.com, we like the idea of selling options on "good" dividend stocks, preferably from the Dow Jones list. WFC is both a good dividend stock, raising its dividend for the past 8 years, also stock is from the Dow Jones list

With a dividend at $2.04, this buy gives as a 7.34% dividend yield. Dividends are paid in the following months: March, June, September, December. 100 shares could net you $204 yearly (before tax)

This trade is the second in the month of June, and if we stick with our trading plan for this month, premium generated from this trade makes us about 8.1% from our $600 monthly goal, while in total we have already reached 15.86% from this goal.

Trading plan for June 2020 (Option trades & Stock Buys)

WFC is a bank stock that has been under our radar for quite a long time. History dates back at the end of 2016 when we headed to the US to open a bank account for me, and at Wells Fargo, it took me some 15 minutes to set it up, see: How To Open A Bank Account in U.S., As A Non-resident Non - citizen, Wells Fargo Bank

Also, at the start of March, I decided to sell options on WFC stock to generate additional income for my mom's pension fund, see: Launching Semi-Passive Income Portfolio for my Mom

Last but not least, when launching OptionsBrew.com last month, following words I said:

The more I thought, the more I realized that covered calls are my thing. I have been working my butt to save and invest for 100 shares of CSCO, 100 shares of PFE, 100 Shares of WFC and etc. So I could sell covered calls, collect the dividend and enjoy a nice income - semi-passive income

Wow, we just actually bought these 100 shares of WFC.

Without furder ado, here is our trade setup:

  • BOT 100 WFC Stock 27.79 USD 
  • SLD  1 WFC JUN 05 '20 28 Call Option 0.51 

what can happen next:

If WFC is trading below our strike price of $28 at expiry date (June 05, 2020), in such case, we keep the premium and sell more covered calls to lower our cost basis. As WFC is a dividend stock, in the worst case we keep the stock to collect the dividend and wait for stock to recover.

In case WFC is trading above our strike price of $28, our shares get called away at strike price $28 and we realize our max gain $70, or 2.51% potential income in just 3 days

Covered calls with Wells Fargo
Covered calls with Wells Fargo

  • Running Total  2 Trades since June 2, 2020
  • Trade P/L $49, with capital at risk $2,779
  • 1.76% income from premium
  • Potential max return if shares called away: 2.51% in 3 days