The T. Rowe Price shares we are holding are offering a nice dividend of $5.22, but we can do a little better by also selling deep out of the money covered calls on the stocks we own. We generally are looking for Deltas on the covered calls we sell to be .03 to .08, with possible excursions near .10. An option’s Delta is approximately the market’s estimation of the chances for the stock to be called away at the given expiration date and strike price.

With TROW selling near $97.50, the 110 strike price I chose is well out of the money, with a Delta of .0884. While the option’s premium is small, the risk of being called away is also quite low. Moreover. the consequences of being called away at $110 represents a strong price premium of more than 13% from where we sit today. That would be a strong price move in the 64 days that the option runs. We don’t mind making a little premium while risking the opportunity for some nice capital gains.