Tesla continues to show solid price action, holding steady above the 21-day exponential moving average as well as recently climbing above the 50- and 200-day moving averages. Unfortunately for income investors, the EV giant does not pay a dividend. But we can manufacture our own "dividend" using options in Tesla stock.
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 terms of overall profits. But this action increases the yield from the investment in the form of option premium. The Tesla stock 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 Tesla stock? Let's take a look.
The Long-Term Covered Call With Tesla Stock
On Tesla stock, a July 17, 2026, expiration call option with a strike price of 330 recently sold for around $70.72, generating $7,072 in premium per contract.
Purchasing 100 shares of Tesla stock would cost around $32,790, based on Friday trading. But the net cost of ownership can get reduced to $25,718 by the $7,072 in call-option premium received. Therefore, we have created a yield of 27.5% (7,072 divided by 25,718, multiplied by 100) over a 337-day period.
That clearly beats the dividend yield on most stocks in the current market. Plus, this trade in Tesla stock still allows for a bit of capital appreciation.
If Tesla closes above 330 on the expiration date, the shares will get called away at that price. This would leave the trader with a solid 28% return.
Covered calls are a fantastic way to generate income from a stock holding while also providing some downside protection.
If Tesla closes below 330 on the expiration date, the investor might consider selling another call 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.
IBD Ratings
According to IBD Stock Checkup, Tesla stock ranked seventh in the auto manufacturers group. It sports a Composite Rating of 56, an EPS Rating of 54 and a Relative Strength Rating of 75.
Tesla dominates the U.S. electric vehicle market with around 70% share, led by its bestselling Model Y SUV and a business model that integrates direct sales, servicing, and charging.
Evolving from a niche luxury brand to a mass-market clean energy leader, Tesla's market capitalization now exceeds that of major legacy automakers combined.
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, and is conservative in his style. He also believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ.
