Comparing Short and Long-Term Covered Calls on Wells Fargo Stock

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

Wells Fargo (WFC) has been a strong performer in the last three years and is up 37.49% in that time.

WFC also pays a hefty dividend with the current dividend yield sitting at 2.44%.

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

WFC Covered Call Examples

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

Let’s evaluate the first WFC covered call example. Buying 100 shares of WFC would cost around $5,740. The July 19, 60 strike call option was trading on Friday for around $0.98, generating $98 in premium per contract for covered call sellers. 

Selling the call option generates an income of 1.74% in 34 days, equalling around 18.65% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of $60?

If WFC closes above $60 on the expiration date, the shares will be called away at $60, leaving the trader with a total profit of $358 (gain on the shares plus the $98 option premium received). That equates to a 6.35% return, which is 68.12% on an annualized basis. 

Instead of the July 19-strike, let’s look at selling the June 20, 2025 $60-strike call instead. Selling the June 2025 call option for $5.30 generates an income of 10.17% in 370 days, equalling around 10.04% annualized. 

If WFC closes above $60 on the expiration date, the shares will be called away at $60, leaving the trader with a total profit of $790 (gain on the shares plus the $530 option premium received).

That equates to a 15.16% return, which is 14.96% 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 WFC might drop, which could wipe out any gains made from selling the call.

Barchart Technical Opinion

The Barchart Technical Opinion rating is a 40% Buy with a Weakest short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

Implied volatility is at 27.93% compared to a 12-month low of 17.50% and a 12-month high of 37.51%. 

Company Description

Wells Fargo & Company is one of the largest financial services companies in the U.S. The company provides banking, insurance, trust and investments, mortgage banking, investment banking, retail banking, brokerage services and consumer and commercial finance through more than 4,700 retail bank branches, broad automated telling machines (ATMs) network, the Internet and other distribution channels globally.

 It has 4 segments. Consumer Banking and Lending offers products and services like checking and savings accounts, credit and debit cards, as well as home, auto, personal and small business lending to consumers and small businesses. 

Commercial Banking provides banking and credit products across industries, and treasury management. 

Corporate and Investment Banking delivers services related to capital markets, banking and financial products. 

Wealth and Investment Management provides personalized wealth management, brokerage, financial planning, lending, private banking, trust and fiduciary products and services.

Of the 26 analysts following WFC stock, 12 have a Strong Buy rating and 14 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.