The Short Answer: Yes, VZ Is a Workable Covered-Call Stock

Selling a covered call on Verizon (VZ) lets you collect option premium on top of the stock's already-high dividend yield — which has run above 6% in recent years. The best setup is typically a slightly out-of-the-money call expiring 30–45 days out, chosen so you keep the dividend if the ex-dividend date falls inside the contract window. Done right, the combined yield from premium plus dividend can push your annualized income well above what the dividend alone delivers.

Why Verizon Attracts Covered-Call Sellers

VZ is a slow-moving, large-cap telecom. That matters for covered-call sellers for two reasons.

First, the stock does not whipsaw the way a tech name does. Lower realized volatility means your shares are less likely to rocket past your strike and get called away unexpectedly. Second, Verizon pays a quarterly dividend — roughly $0.665 per share as of mid-2024 — which adds a predictable cash layer underneath whatever premium you collect.

The trade-off is that lower volatility also means lower implied volatility (IV), so the raw premium on VZ calls is modest compared to, say, NVDA. You are not going to collect $3.00 on a 30-day VZ call. But for investors who already own VZ for income, the covered call is a straightforward way to squeeze out extra yield without changing the core thesis.

How to Build the Trade: A Worked Example

Let us walk through a realistic setup. Assume VZ is trading at $40.50 and you own 100 shares.

**The setup:** - Stock price: $40.50 - Strike chosen: $42.00 call (about 3.7% out of the money) - Expiration: 35 days out - Premium collected: $0.45 per share, or $45.00 for one contract - Upcoming quarterly dividend: $0.665 per share ($66.50 for 100 shares), with ex-dividend date falling 18 days into the contract

**What you earn if VZ stays below $42.00 at expiration:** - Option premium: $45.00 - Dividend: $66.50 - Total income in 35 days: $111.50 on a $4,050 position - That is a 2.75% return in 35 days, or roughly 29% annualized — before taxes and commissions

**What happens if VZ closes above $42.00:** Your shares get called away at $42.00. You still keep the $45.00 premium and the $66.50 dividend (as long as you held through ex-dividend). Your capital gain on the stock is $150.00 ($42.00 minus $40.50, times 100). Total proceeds: $4,200 + $45 + $66.50 = $4,311.50 versus a starting cost of $4,050. That is a solid outcome, not a disaster.

The only painful scenario is if VZ drops sharply — say to $36.00. The $45 premium softens the blow slightly, but you still have an unrealized loss on the stock. The covered call does not protect you from a big downside move.

The Dividend Timing Risk You Cannot Ignore

This is the part most new covered-call sellers miss. If you sell a call that expires after the ex-dividend date, the buyer of your call has the right to exercise early — before the ex-dividend date — to capture the dividend themselves. This is called early assignment.

For deep in-the-money calls, early assignment is a real risk. For out-of-the-money calls like the $42.00 strike in our example, it is rare because the buyer would be giving up time value. But you should always check where your strike sits relative to the stock price and the upcoming ex-dividend date.

The Options Industry Council (OIC) covers early assignment mechanics in its educational materials and notes that American-style equity options — which VZ options are — can be exercised at any time before expiration. FINRA also flags early assignment as a key risk retail investors should understand before selling covered calls.

Practical rule: if your call is in the money and the ex-dividend date is approaching, be mentally prepared for early assignment. It is not the end of the world — you collect the premium and sell the stock at your strike — but it means you miss the dividend.

Choosing Your Strike and Expiration: The Key Trade-Offs

There is no single "best" strike. The right choice depends on your goals.

**If you want maximum premium and do not mind selling:** Sell a call at or just above the current stock price (at-the-money or ATM). On a $40.50 VZ, that might be the $41.00 strike. You collect more premium — perhaps $0.70 to $0.80 — but you have a high probability of assignment.

**If you want to keep the shares:** Sell a call 5–8% out of the money. On $40.50 VZ, that is the $43.00 or $44.00 strike. Premium drops to maybe $0.20–$0.30, but assignment risk is low.

**On expiration length:** The 30–45 day window is the sweet spot most professional covered-call sellers use. Theta decay — the daily erosion of option time value — accelerates in the final 30 days. The CBOE's research on covered-call indexes (such as the BXM, which tracks a monthly S&P 500 covered-call strategy) consistently shows that monthly expirations capture this decay efficiently.

**Delta as a quick guide:** A delta of 0.20–0.30 on your short call means the market is pricing roughly a 20–30% chance of assignment. Many income-focused sellers target this range. A delta above 0.50 means you are more likely than not to be called away.

**Liquidity check:** Always look at the bid-ask spread before you trade. VZ options are reasonably liquid for a telecom, but you should still use a limit order placed near the midpoint of the spread. Selling at the bid leaves money on the table.

Tax Treatment: What the IRS and CRA Say

Tax rules for covered calls are not simple, and getting them wrong is costly.

**For US investors (IRS rules):** The IRS treats covered-call premium as short-term capital gain in most cases, reported in the year the position closes. More importantly, selling a call can suspend the holding period on your underlying shares. If you sell an in-the-money call, the IRS may treat your shares as not having met the long-term holding period requirement — which affects whether your VZ dividends qualify for the lower qualified dividend tax rate (currently 0%, 15%, or 20% depending on your bracket). IRS Publication 550 covers these "qualified covered call" rules in detail. If your call is out of the money by a reasonable margin, the holding period is generally not suspended, and your dividends remain qualified. When in doubt, consult a tax professional.

**For Canadian investors (CRA rules):** The Canada Revenue Agency treats option premiums received as either income or capital gains depending on the frequency of trading and intent. Active traders are typically taxed as business income; occasional sellers may qualify for capital gains treatment. The CRA's Interpretation Bulletin IT-479R addresses transactions in securities. Canadian investors should also note that VZ is a US stock, so US withholding tax on dividends (typically 15% under the Canada-US tax treaty) applies inside non-registered accounts.

Honest Risk Summary: What Can Go Wrong

Covered calls are not a free lunch. Here are the real risks, stated plainly.

**Downside risk is uncapped.** If VZ drops from $40.50 to $35.00, your $45 premium covers only $0.45 of a $5.50 loss. The covered call is not a hedge in any meaningful sense.

**You cap your upside.** If Verizon announces a merger or buyout and the stock jumps to $48.00, you are still selling at $42.00. You miss $6.00 per share of gain.

**Dividend cuts happen.** Verizon has maintained its dividend for years, but no dividend is guaranteed. If VZ cuts its payout, the income thesis weakens and the stock price often drops at the same time — a double hit.

**Early assignment.** As discussed, in-the-money calls near the ex-dividend date carry real early assignment risk.

**Liquidity and spreads.** Wide bid-ask spreads on less-traded strikes can eat into your premium. Stick to strikes with open interest above 500 contracts.

The SEC's investor education resources and FINRA's options disclosure document (the ODD, formally titled "Characteristics and Risks of Standardized Options") both require brokers to provide this document before you can trade options. Read it. It covers these risks in full.

What is the best covered call strike to sell on VZ right now?

Most income-focused sellers target a strike 3–6% out of the money with 30–45 days to expiration, which typically corresponds to a delta of 0.20–0.30. On a $40.50 VZ, that points to the $42.00–$43.00 range. Check the current bid-ask spread and open interest before placing your order to make sure the strike is liquid.

Can I still collect the Verizon dividend if I sell a covered call?

Yes, as long as you hold the shares through the ex-dividend date and your call is not exercised early. Out-of-the-money calls rarely trigger early assignment, so most sellers keep the dividend. If your call moves deep in the money before the ex-dividend date, early assignment becomes a real possibility.

How much premium can I realistically collect selling VZ covered calls?

At typical implied volatility levels, a 35-day, slightly out-of-the-money VZ call might bring in $0.35–$0.65 per share, or $35–$65 per 100-share contract. Combined with the quarterly dividend of roughly $0.665, total income per contract per quarter can reach $100–$130. Annualized, that adds 10–13% on top of the base dividend yield.

What happens if Verizon stock gets called away from me?

You sell your 100 shares at the strike price you chose, keep the premium you already collected, and keep any dividend paid before expiration. It is a clean exit at a price you agreed to in advance. You can then decide whether to buy VZ back and restart the covered-call cycle.

Does selling covered calls on VZ affect my dividend tax treatment?

It can. The IRS has rules around "qualified covered calls" that can suspend your holding period on the underlying shares, potentially turning qualified dividends into ordinary income. Out-of-the-money calls generally do not trigger this issue, but in-the-money calls may. Review IRS Publication 550 or speak with a tax advisor before trading.

Is VZ a good stock for the wheel strategy?

VZ can work for the wheel — selling cash-secured puts to acquire shares, then selling covered calls once assigned — because of its high dividend and relatively low volatility. The main caution is that VZ has trended lower over multi-year periods, so repeatedly buying shares via put assignment can result in a rising cost basis in a declining stock. Size positions conservatively.