January 21, 2025
As Seagate Technology (NASDAQ: STX) approaches its Q2 2025 earnings report, income-focused investors are eyeing potential strategies to generate monthly cash flow from the data storage giant’s shares. One approach that’s gaining attention is using covered calls – a conservative options strategy that can provide regular income while maintaining a long position in the stock.
To generate approximately $500 monthly from Seagate stock using covered calls, investors would need to own around 400 shares as a starting position, worth roughly $32,000 at current market prices. This serves as the foundation for writing (selling) call options against the position.
The strategy involves selling out-of-the-money call options with 30-45 days until expiration. Based on current option premiums, selling calls about 5-7% above the market price typically generates between $1.20-1.50 per share in premium income. With 400 shares, this translates to $480-600 in monthly income before trading costs.
“Covered calls can be an effective income strategy for stocks like Seagate that have relatively high option premiums due to their volatility,” explains Maria Chen, options strategist at Capital Markets Advisory (note: this is a hypothetical quote). “However, investors need to understand that this strategy caps their upside potential if the stock rises sharply.”
The key risks include:
- Limited upside potential if STX shares rise above the strike price
- Continued exposure to downside risk in the stock
- The need for a larger initial capital investment
- Potential tax implications from frequent options trading
Investors should also factor in Seagate’s upcoming earnings report, as increased volatility around such events can affect option premiums and execution prices. Additionally, this strategy requires active management and regular monitoring of positions.
For those interested in this approach, consulting with a financial advisor is recommended to ensure it aligns with individual investment goals and risk tolerance.
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Note: This article is for informational purposes only and should not be considered financial advice.
