With markets becoming more volatile, investors might be more interested in generating income rather than capital gains.
Coca-Cola (KO) has long been a staple of dividend investors and with the stock down 8% in the last month, it provides an attractive opportunity for savvy investors.
Using options we can more than double the yield on our KO shares by using a covered call strategy.
A covered call involves selling call options against a stock position.
KO Covered Call Example
Buying 100 shares of KO would cost $7,186. The September 19, 2025 call option with a strike price of $72.50 was trading around $3.70 yesterday, generating $370 in premium per contract for covered call sellers.
Selling the call option generates an income of 5.4% in 157 days, equalling around 12.6% annualized.
Covered call traders also receive the yearly dividend of $1.97 which is a yield of 2.71%.
The covered call option premium brings the total yield up from 2.71% to 15.31%.
That’s a pretty attractive yield for a low-beta, defensive stock and almost triple want regular shareholder receive.
That assumes the stock stays exactly where it is. What if the stock rises above the strike price of $72.50?
If KO closes above $72.50 on the expiration date, the shares will be called away at $72.50, leaving the trader with a total profit of $434 (gain on the shares plus the $370 option premium received). That equates to a 6.4% return, which is 14.8% on an annualized basis.
Of course, the risk with the trade is that the KO might drop, which could wipe out any gains made from selling the call.
Company Details
The Coca-Cola Company's strong brand equity, marketing, research and innovation help it to garner a major market share in the non-alcoholic beverage industry.
The company is making investments in healthier alternatives like coffee, sparkling water and sports drinks.
The roll out of Coca-Cola Energy, Coca-Cola Plus Coffee, Powerade Ultra and Powerade Power Water are some additions on these lines.
The company's portfolio includes beverage products, spanning from sodas to energy drinks.
In addition to its sparkling soft drinks, the company sells a large range of still beverages including water, enhanced water, juices and juice drinks, sports drinks, ready-to-drink teas, coffees and dairy and energy drinks.
Most of the company's beverages are manufactured, sold and distributed by independent bottling partners.
Coca-Cola currently reports operating results under the following segments - Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Global Ventures; Bottling Investments and Corporate.
Barchart Technical Opinion
The Barchart Technical Opinion rating is a 88% Buy with a Strongest short term outlook on maintaining the current direction.
Implied volatility is at 22.79% compared to a 12-month low of 10.82% and a 12-month high of 30.61%.
Coca-Cola rates as a Strong Buy according to 20 analysts with 1 Moderate Buy and 1 Hold ratings.
Defensive stocks such as Coca-Cola are a common component of most investment portfolios and now you know how to generate an extra income from your KO position.
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.
