Coca-Cola (KO) is a resilient, dividend-paying consumer staples giant with a global footprint and strong brand loyalty.
There’s a reason why Coca-Cola stock has been a famous long-term investment by Warren Buffett, and it has reaped billions in capital gains and dividends.
It has increased its dividend for over 60 consecutive years, demonstrating consistent cash flow and financial discipline even during economic downturns.
Income investors may be interested in further enhancing the attractive dividend yield through the use of covered calls.
Covered Call For Coca-Cola Stock
Coca-Cola is a low beta stock that pays a 3% dividend. But we can significantly increase that yield by trading a long-term covered call strategy.
A covered call involves buying 100 shares of the underlying stock and simultaneously selling a call option against those shares. Selling the call limits the upside but increases the yield from the investment in the form of option premium. The investor keeps the premium generated from selling calls no matter what happens with the stock.
When trading covered calls, most investors sell monthly calls against their stock to make the most of the effects of time decay. That makes a lot of sense but also requires a lot of active management. What if we sold longer-term covered calls against Coca-Cola stock? Let’s take a look.
Long-term Option For Long-term Stock
On Coca-Cola stock, a Sept. 18, 2026, call option with a strike price of 72.50 sold for around $3.25 Wednesday morning, generating $325 in premium per contract.
Purchasing 100 shares of Coca-Cola stock cost around $6,850 but the net cost can be reduced by the $325 option premium received.
Therefore, we have created a yield of (325/6,525) in 325 days which is 5% or 5.6% annualized, not including the dividend.
That clearly beats the dividend yield on most stocks in the current market and still allows for around $400 of capital appreciation.
If Coca-Cola closes above 72.50 on the expiration date, the shares will be called away at 72.50, leaving the trader with an 11% return which is 12.6% on an annualized basis, not including the dividends.
Covered calls are a fantastic way to generate income from a stockholding while also providing some downside protection.
If Coca-Cola closes below 72.50 on the expiration date, the investor can sell another call if they want to continue generating option premium.
Investors would need to weigh the pros and cons of the stock before initiating a bullish trade like a covered call.
Coca-Cola Stock Ratings
Investor’s Business Daily gives Coca-Cola stock a Composite Rating of 72 out of a best-possible 99, an Earnings Per Share Rating of 71 and a Relative Strength Rating of 48. According to IBD Stock Checkup, Coca-Cola ranks No. 13 in its group.
Please remember that options are risky and investors can lose 100% of their investment.
Gavin McMaster is founder and operator of Options Trading IQ, which offers instruction on how to buy and sell options. Follow him on X/Twitter at @OptiontradinIQ.
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