On July 19th we took a look at AT&T stock after a recent sell-off that brought shares from 42 to below 36. At the time we liked the idea of scooping stock with an eye towards support and then selling upside calls against. Here is some of what we said, when the stock was 35.82
The only problem here is that upside calls are too dollar cheap to sell given the sharp decline in the stock and the potential for an unexpected quick sharp bounce. For instance with the stock at $35.82 the Aug 37 call can be sold at 28 cents, or a little less than 1% of the stock price. That’s not bad if you annualized it, selling a 3% out of the money call against long stock that already pays a 5.45% dividend yield. Annualize that and you have a holding easily yielding 10%.
I am buying a little stock here at $35.82 with an eye towards averaging down a little, and strongly considering routinely selling a month out 3% out of the money call to super yield this mofo as we get more clarity on the likelihood of approval of TWX, and event that would make this stock a must own in my opinion.
The stock bounced pretty sharply on their recent earnings report and now with the stock 39.10 it makes sense to start looking to add that super yield in the form of call sales. The most obvious call sale at the moment is in September, where the 40 calls can be sold at .38, giving the stock a little more room to the upside here but adding some decent yeild if the stock goes sideways or slightly down. It essentially lowers the cost basis on the original stock purchase. The stock can be called away of the stock is above 40 on Sept expiration, but at an effective sale price of 40.38 vs the original 35.82 purchase.