Covered Calls on PG (Procter & Gamble): Boost Income Without Killing Your Dividend

The Short Answer: Yes, You Can Sell Covered Calls on PG and Keep the Dividend

Selling a covered call on Procter & Gamble (PG) lets you collect option premium on top of PG's quarterly dividend — currently around $1.0065 per share as of early 2025, putting the annual yield near 2.4%. The key is picking the right strike price and expiration so you keep the dividend, avoid early assignment, and still leave room for the stock to work.

PG is a Dividend King — it has raised its dividend for over 67 consecutive years. That makes it a popular choice for income-focused covered-call writers who want two income streams from the same shares. Done right, you can realistically target a combined annualized yield of 5–8% on a stock most investors already hold for safety.

Why PG Works Well for Covered-Call Writing

PG trades in a relatively tight range compared to tech stocks. That low realized volatility means the stock is unlikely to gap wildly against you, which is exactly what covered-call sellers want. The tradeoff is that implied volatility (IV) is also lower, so premiums are modest — but they are consistent.

As of mid-2025, PG trades around $165. A 30-day at-the-money (ATM) call typically fetches roughly $1.50–$2.00 per contract (per share), depending on IV at the time. That is $150–$200 per 100-share lot every month. Annualized, that adds roughly 1.1–1.5% on top of the 2.4% dividend yield, pushing your total income yield toward 3.5–4% without touching the shares.

If you are willing to sell slightly in-the-money (ITM) or accept a higher assignment risk, you can push that premium higher — but you need to understand what you are giving up.

Worked Example: Selling a Covered Call on PG Around an Ex-Dividend Date

Let's walk through a realistic trade. Assume you own 100 shares of PG at a cost basis of $155, and the stock is currently trading at $165.

**The setup:** - Stock price: $165.00 - Quarterly dividend: $1.0065 per share (ex-dividend date approximately 3 weeks away) - Target call: PG $167.50 strike, expiring 35 days out - Bid/ask on that call: $1.40 / $1.55 — you sell at the mid for $1.47 - Premium collected: $147 per 100-share lot (before commissions)

**What you earn if PG stays below $167.50 at expiration:** - Option premium: $147 - Dividend (if you hold through ex-date): $100.65 - Total income this cycle: $247.65 - That is a 1.50% return on $165 stock in roughly 35 days, or about 15.7% annualized on that capital

**What happens if PG closes above $167.50 at expiration:** Your shares get called away at $167.50. You keep the premium and the dividend (assuming ex-date passed), and you realize a $12.50 per share capital gain on top. That is actually a good outcome — you just cap your upside at $167.50.

**The ex-dividend timing rule:** Never sell a deep ITM call that expires after the ex-dividend date if the extrinsic value of that call is less than the dividend amount. Why? The call buyer has an incentive to exercise early the night before ex-date to capture the dividend themselves. The Options Industry Council (OIC) explains this early-exercise risk in detail in its educational materials. A $167.50 strike with $2.50 of intrinsic value and only $0.80 of extrinsic value on a $1.00 dividend is a red flag — the buyer may exercise early, stripping you of the dividend.

How to Choose the Right Strike and Expiration for PG

Strike selection comes down to one question: how much upside are you willing to give up in exchange for premium?

**Out-of-the-money (OTM) calls — e.g., $170 strike when PG is at $165:** Lower premium ($0.80–$1.10 range at 30 days), but you keep more upside. Good if you think PG might run. Delta around 0.25–0.30.

**At-the-money (ATM) calls — e.g., $165 strike:** Higher premium ($1.80–$2.20 range), but you cap gains right at the current price. Delta around 0.50. Assignment risk is real if PG ticks up even slightly.

**Slightly OTM with 30–45 day expiration is the sweet spot for most PG holders.** The 30–45 day window captures the highest theta decay per day (time decay works fastest in the final 30 days, per CBOE data on theta curves). You collect meaningful premium without giving away all your upside.

For expiration, avoid weeklies on PG unless you are actively managing the position. The bid-ask spreads on PG weekly options can eat 10–15% of your premium in transaction costs. Monthly expirations (third Friday of each month) have tighter spreads and more liquidity.

The Real Risks — Read This Before You Sell

Covered calls are not free money. Here are the risks that matter specifically for PG holders:

**1. You cap your upside.** If PG announces a major buyback, raises guidance, or gets bid up in a defensive-stock rally, you miss gains above your strike. PG has had 10%+ moves in a single quarter before. A covered call would have capped you out.

**2. Early assignment strips your dividend.** As explained above, deep ITM calls near ex-dividend dates carry early exercise risk. FINRA Rule 2360 governs options practices at broker-dealers, and your broker's assignment process is random among all short-call holders. You may be assigned even if you did not expect it.

**3. The stock can still fall.** A covered call only offsets losses by the amount of premium collected. If PG drops from $165 to $150, your $147 in premium covers $1.47 of that $15 drop. You still lose $13.53 per share net. The call does not protect you from a serious decline.

**4. Wash-sale and holding-period rules.** The IRS has specific rules about how selling covered calls affects the holding period of your underlying shares. If you sell an ITM call, the IRS may suspend the holding period on your PG shares, which could convert a long-term capital gain into a short-term one if you are assigned. Canadian investors should note that the CRA applies similar logic under its superficial loss rules. Consult a tax professional before writing calls on shares held less than one year or near a tax-loss harvesting event.

**5. Qualified dividend status at risk.** The IRS requires you to hold shares for more than 60 days during the 121-day window surrounding the ex-dividend date to receive qualified dividend tax treatment (taxed at 0–20% vs. ordinary income rates). Selling a deep ITM covered call can suspend that holding period under IRS rules. Stick to OTM or slightly OTM calls to avoid this trap.

Tax Basics for PG Covered-Call Writers (US and Canada)

In the US, premium received from selling a covered call is not taxed when you receive it — it is taxed when the position closes. If the call expires worthless, you recognize a short-term capital gain equal to the premium on the expiration date, regardless of how long you held the shares. If the call is assigned, the premium is added to the proceeds from the stock sale. The IRS Publication 550 covers investment income and expenses, including options treatment.

For Canadian investors, the CRA treats covered-call premiums as capital gains (50% inclusion rate) in most cases when the call expires worthless, but the treatment can shift to income depending on your trading frequency and intent. The CRA's Interpretation Bulletin IT-479R addresses transactions in securities. If you trade covered calls frequently, the CRA may classify your gains as business income, fully taxable. Get advice from a Canadian tax professional if you are writing calls more than a few times per year.

One practical tip for both US and Canadian investors: keep a trade log. Record the date, strike, expiration, premium received, and outcome for every covered call. This makes tax filing cleaner and helps you track your actual yield over time.

Is a Covered Call on PG Better Than Just Holding for the Dividend?

It depends on your goals. If you never want to sell PG — it is a core holding you plan to pass to your kids — then selling covered calls introduces assignment risk you may not want. Getting called away at $167.50 means you have to buy back in at a higher price if PG keeps climbing, and that re-entry cost can wipe out months of premium income.

But if you are comfortable selling PG at a price 2–5% above today's level, covered calls are a logical income enhancer. You are essentially getting paid to set a limit sell order. The premium is yours to keep no matter what.

For most retail investors holding PG in a taxable account, a slightly OTM call (delta 0.20–0.30) expiring 30–45 days out, sold after the ex-dividend date has passed, is the lowest-friction approach. You collect premium, you already collected the dividend, and you have a full month before you need to think about the position again.

If PG is held in a tax-advantaged account (IRA in the US, TFSA or RRSP in Canada), the tax complexity drops significantly — premiums and dividends compound without immediate tax drag, making the covered-call strategy even more attractive on a net-return basis.

Will selling a covered call on PG cause me to lose my dividend?

Not automatically, but it can happen if you sell a deep in-the-money call before the ex-dividend date. The call buyer may exercise early the night before ex-date to capture the dividend themselves, leaving you without it. Stick to out-of-the-money strikes, or wait until after the ex-dividend date to open your call position.

What strike price should I sell on PG covered calls?

Most income-focused traders target a strike 2–5% above the current stock price, which corresponds to a delta of roughly 0.20–0.30. On a $165 PG stock, that means the $168–$172 range for a 30-day expiration. This gives you meaningful premium while leaving room for normal price fluctuation without triggering assignment.

How much premium can I realistically collect selling covered calls on PG each month?

At current implied volatility levels, a 30-day slightly out-of-the-money call on PG typically generates $0.80–$1.50 per share, or $80–$150 per 100-share lot. That adds roughly 0.5–0.9% per month on top of the quarterly dividend, pushing total annualized income yield to approximately 4–6% depending on market conditions.

Does selling covered calls on PG affect my qualified dividend tax rate?

It can. The IRS requires you to hold shares for more than 60 days in the 121-day window around the ex-dividend date to qualify for the lower dividend tax rate. Selling an in-the-money covered call can suspend your holding period under IRS rules, potentially converting qualified dividend income into ordinary income. Consult a tax advisor and refer to IRS Publication 550 for details.

Can I sell covered calls on PG inside my IRA or TFSA?

Yes. Covered calls (selling calls against shares you already own) are permitted in most US IRA accounts and Canadian TFSA and RRSP accounts, though you should confirm with your broker. The tax advantage is significant — premiums and dividends accumulate without immediate tax drag, making the strategy more efficient than in a taxable account.

What happens to my covered call if PG goes ex-dividend and the stock price drops?

PG's stock price typically drops by roughly the dividend amount on ex-dividend day, which is normal and expected. This price dip can actually help your covered call position by moving the stock further away from your strike, reducing assignment risk. The call's value will decrease slightly as well, which is a benefit to you as the seller.