2 Covered Call Ideas on Pfizer Stock

In the current market environment, investors might be more interested in generating income rather than capital gains. 

Today, we’re looking at two covered call examples on Pfizer stock. The first step to finding our covered call candidates is to use the Stock Scanner with the following parameters:

Which produces the following results:

Pfizer (PFE) is up 9.53% in the last six months and is currently showing a dividend yield of 5.84%. The stock also has a high IV Percentile which means options are expensive compared to the recent past.

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 a seven-month expiration.

Let’s evaluate the first PFE covered call example. 

Buying 100 shares of PFE would cost around $2,920. The November 15, 30-strike call option was trading yesterday around $0.70, generating $70 in premium per contract for covered call sellers. 

Selling the call option generates an income of 2.46% in 39 days, equalling around 22.99% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of 30?

If PFE closes above 30 on the expiration date, the shares will be called away at 30, leaving the trader with a total profit of $150 (gain on the shares plus the $70 option premium received). That equates to a 5.26% return, which is 49.26% on an annualized basis. 

Instead of the November 15 call, let’s look at selling the June 30-strike call instead. 

Selling the June 30-strike call option for $2.00 generates an income of 7.35% in 256 days, equalling around 10.48% annualized. 

If PFE closes above 30 on the expiration date, the shares will be called away at 30, leaving the trader with a total profit of $280 (gain on the shares plus the $200 option premium received).

That equates to a 10.29% return, which is 14.68% 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 80% Buy with a Strengthening short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

Implied volatility is at 30.67% compared to a 12-month low of 18.16% and a 12-month high of 33.73%.

The next earnings release is set for October 29th.

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 21 analysts following the stock, 9 rate it as a Strong Buy and 12 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.

On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.