2 Covered Call Ideas on Pfizer Stock

Income investors tend to gravitate towards covered calls, and blue-chip high yielding stocks are a great place to start. 

Pfizer (PFE) has been a strong performer in the last month and is up 12.11% in that time.

PFE also pays a hefty dividend with the current dividend yield sitting at 3.29%.

Using options, we can generate an additional income from high yielding stocks via a covered call strategy.

PFE Covered Call Example

Let’s look at two different covered call examples on PFE stock. The first will use a monthly expiration and the second will use an eight-month expiration.

Let’s evaluate the first PFE covered call example. Buying 100 shares of PFE would cost around $4,806. The December 16, 50 strike call option was trading yesterday for around $0.65, generating $65 in premium per contract for covered call sellers. Selling the call option generates an income of 1.39% in 29 days, equalling around 16.94% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of 50?

If PFE closes above 50 on the expiration date, the shares will be called away at 50, leaving the trader with a total profit of $260 (gain on the shares plus the $65 option premium received). That equates to a 5.49% return, which is 66.74% on an annualized basis. 

Instead of the December 50, let’s look at selling the June 50 call instead. Selling the June 50 call option for $3.15 generates an income of 7.01% in 211 days, equalling around 12.08% annualized.  If PFE closes above 50 on the expiration date, the shares will be called away at 50, leaving the trader with a total profit of $509 (gain on the shares plus the $315 option premium received).

That equates to an 11.33% return, which is 19.51% on an annualized basis.

These figures don’t include any potential dividends received during the course of the trades.

Of course, the risk with the trade is that the PFE might drop, which could wipe out any gains made from selling the call.

Barchart Technical Opinion

The Barchart Technical Opinion rating is a 24% Sell with weakest short term outlook on maintaining the current direction. 

Implied volatility is at 26.01% compared to a 12-month low of 24.00% and a 12-month high of 40.61%. 

Company Description

Pfizer Inc. is a research-based, global biopharmaceutical company. The company boasts a sustainable pipeline with multiple late-stage programs that can drive growth. Pfizer markets a wide range of drugs and vaccines. Its business comprises six business units - Oncology, Inflammation & Immunology, Rare Disease, Hospital, Vaccines and Internal Medicine. Pfizer spinned-off its Upjohn unit, its off-patent branded and generic established medicines business, and combined it with generic drugmaker Mylan to create a new generic pharmaceutical company called Viatris. The Consumer Healthcare (CHC) segment, an over-the-counter (OTC) medicines business, was merged with Glaxo's unit to form a new joint venture.'The Consumer Healthcare joint venture with Glaxo and the merger of Upjohn unit with Mylan has made Pfizer a smaller company with a diversified portfolio of innovative drugs and vaccines.

Of the 12 analysts following PFE stock, 8 have a Strong Buy rating and 4 have a Hold rating.

Covered calls can be a great way to generate some extra income from your core portfolio holdings.

Please remember that options are risky, and investors can lose 100% of their investment.  This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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