Gilead Sciences has been a relatively solid performer this year in the biotech sector as its peers have struggled. The stock is up nearly 15% year-to-date, lagging the S&P 500. Yet it's rebounded 35% in the past six months, making a covered call trade in Gilead Sciences stock quite appetizing.
Gilead Sciences has been quietly building a compelling growth story that extends well beyond its traditional antiviral roots. The company's strategic expansion into oncology is gaining momentum, with its cell therapy franchise and Trodelvy showing promising growth across multiple cancer indications.
Meanwhile, Gilead continues to innovate in its core HIV business. Its groundbreaking long-acting treatment lenacapavir represents a potential game-changer for patients who need only twice-yearly dosing.
Adding to this positive outlook, the company's robust cash flow generation and attractive dividend yield provide investors with steady income while Gilead executes on its broader growth initiatives across multiple therapeutic areas.
Gilead Sciences Stock Today: The Covered Call
Gilead stock began paying dividends in 2016 and management has increased the payout each year since, making it an attractive candidate for income investors. GILD currently has an annual dividend yield of 3.3%. So, income investors who wish to generate increase the yield on this health care stock could look at the covered call.
See a covered call as one strategy to slightly reduce the risk on a long stock position while also generating some premium. The catch? The trade limits the upside potential at the covered call strike price.
Buying 100 shares of Gilead Sciences stock would cost around $9,250, based on recent trading. A Feb. 21, 100-strike call option traded around $1.50, generating $150 in premium per contract. Selling the call option generates an income of 1.6% in two months, equaling around 9.9% annualized.
A Profit, Even If Called Away
If Gilead stock closes above 100 on the Feb. 21 expiration date, the shares will be called away at 100. This leaves the trader with a total profit of $900 (gain on the shares plus the $150 option premium received). That equates to a 9.7% return, or 58% on an annualized basis.
If GILD stays below 100, the investor can continue selling call options until the shares get called away.
Of course, the risk with the trade is that Gilead Sciences stock might drop, which could wipe out any gains made from selling the call.
Covered calls can be an effective strategy for generating income, managing downside risk, and reducing the effective purchase price of a stock.
According to IBD Stock Checkup, GILD stock ranked No. 25 in its group and has a Composite Rating of 77, an EPS Rating of 56 and a Relative Strength Rating of 84.
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
