Covered Call Trade idea with Deutsche Bank stock (FRA:DBK)
This is not a trade recommendation, this is a trade idea. I'm not a financial advisor, anything written here should be taken with a grain of salt. I take no responsibility If you will decide to invest
I like the idea of selling options on "good" dividend stocks, preferably from the Dow Jones list, but sometimes I make exceptions, and one such exception are stocks from Germany's Dax Index, Inc.
There are a couple of stocks I like there, but one is I like a lot (for options trading)- Deutsche Bank (ETR: DBK).
Deutsche Bank AG is a global Multinational Investment bank and financial services company headquartered in Frankfurt, Germany, and dual-listed in New York Stock Exchange and Frankfurt Stock Exchange.
As I like trading bank stocks (in my arsenal there are quite a few bank stocks, like ING bank from the Netherlands, Bank of America, PBCT, and WFC from the US), just obvious Deutsche Bank is on my radar as well.
I have been trading both DB: NYSE and DBK: FRA stock, in this article I will stick with DBK:FRA stock, but principles stay the same
Top 30 Dividend Paying Stocks in Germany (DAX Index)
Generate monthly income selling covered calls on ETR:DBK stock
On May 11, 2021, we could buy 100 shares of ETR:DBK stock spending EUR 11.29 per share or EUR 1,129, and simultaneously sell out of the money June 18 expiry covered call at the strike price of EUR 11.5 for about EUR 0.35. That gets us EUR 36 and makes about a 3.11% return in 38 days. Break-even: EUR 10.94
If ETR:DBK stock closes below EUR 11.5 on June 18, you keep the premium and start over.
If the stock closes above EUR 11.5 your stock gets called away, but you keep premium EUR 0.35 + realize value gain EUR 0.21 (EUR 11.5- EUR 11.29) from selling stock higher than you bought. Total EUR 56 or about 4,96% potential income return in 38 days.
There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put and get stock back.
Remember, you are selling one contract, 100 shares of ETR:DBK stock, make sure you have 100 shares to sell if called away.
The biggest risk - involving in covered call strategy - the stock price could fall below our buy price and stay there for months/years.