Newmont, a gold, silver and copper mining giant recently added to IBD Leaderboard, also pays a healthy dividend of around 3.32% annualized. Savvy investors can further enhance the return from NEM stock though the use of covered calls.
According to Dow Jones Data, gold futures on Monday climbed 0.9% and made a new high of $2,433.90 an ounce.
NEM Stock Today: The Trade Setup
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 in profits in NEM stock. But the covered call trade also 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.
According to IBD Stock Checkup, NEM stock ranks No. 9 overall in its group. It has a Composite Rating of 97, an EPS Rating of 83 and a Relative Strength Rating of 80.
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 yearly covered calls against NEM stock? Let's take a look.
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A Yearly Covered Call
On NEM stock, a June 20, 2025-expiring call option with a strike price of 50 could have been sold for around $4.55. This trade generates $455 in call premium per contract, based on recent trading.
Purchasing 100 shares of Newmont would have recently cost around $4,374. But the net cost of ownership in NEM stock could get reduced by the $455 in option premium received.
Therefore, we have created a yield of 11.61% (455 / 3,919) in 396 days, or 10.67% per annum — in addition to the 3.32% annualized dividend yield in NEM stock.
This covered call trade with a 50 strike price still allows for around $626 of capital appreciation.
Covered calls are a fantastic way to generate extra income from a stockholding while also providing some downside protection.
Investors would need to weigh the pros and cons of the stock before initiating a bullish trade like a covered call. 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
