Total Annualized Yield (estimate)

Dividends are usually paid quarterly. The table on this site shows the expected annual dividend amount and the percentage yield based on the current stock price. It also shows an estimate of the Total Annualized Yield including additional income from covered call writing.

Covered call options can be sold for different months for different amounts. To calculate the possible annual yield, the option premium is divided by the portion of a full year depending on how many months remain before the option expires. For example, if the current stock price is 50 and an option is sold for 1.50 with six months until expiration, the annual option income is estimated at 3.00.

If the annual expected dividend is 0.50 then the total income is estimated as 3.50 per year and the Total Annualized Yield is 3.50 / 50 = 7%.

This assumes that the stock price remains unchanged. If it goes down, then the loss on the stock could more than offset the gain from option income and dividend income. If it goes up, there could be an additional gain, limited by the strike price of the call option. For example, if the call option had a strike price of 55 the additional profit would be limited to five dollars per share.

Income from covered call option writing can be lucrative but the strategy offers both reward and risk.

Characteristics and Risks of Standardized Options is a very detailed document describing the rights and obligations of option investors.