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Covered calls on Verizon and AT&T: small premiums, a big dividend question

Verizon and AT&T move slowly, so their call premiums are small. The bigger money on these stocks is the dividend, and a covered call can cost you that dividend if your shares get called away the day before.

Options guide · 8-minute read · Updated 2026-10-28

What these two stocks are like for covered calls

Verizon (VZ) and AT&T (T) are two of the biggest US phone and internet carriers. People own them mostly for the dividend. Both pay one every quarter, and both have done so for a long time.

For a Covered call, what matters most:

• Low Implied volatility. The market expects small moves, so the call premiums are thin. A call well above the price may pay only a few dollars per contract.
• A dividend that is bigger than most call premiums. For a lot of strikes, one quarter's dividend on 100 shares is worth more than the call you'd sell.
• Ex-dividend dates four times a year. That is the day you must already own the shares to get the next payment. An in-the-money call near that date can get your shares taken early.
• A share price well under $100. That has held for years for both, so 100 shares costs a few thousand dollars. Check today's price.
• Busy options. Both have deep Open interest and weekly expiries on most strikes near the price.

This isn't a recommendation to buy or sell Verizon or AT&T.

Why the premiums are so small

A call premium is mostly pay for how far the stock might move before expiry. Telecom stocks don't usually move far. People pay their bills every month, and that steady cash shows up in a steady share price.

So the market pays you little to give up the upside. That is not a flaw. It's the price of a quiet stock.

It does change the trade. On a quiet stock, the call is a small extra on top of the dividend. If you sell the call close to the price to get a bigger premium, you raise the chance of losing the shares, and the dividend with them.

The ex-dividend catch

Here is the part that surprises people. In US stock options, the call buyer can exercise early, on any day. Most don't. But the day before the Ex-dividend date, some will.

Why? Someone who owns your call and exercises it gets your shares in time to collect the dividend. That makes sense for them when the call is in the money and the time value left in it is smaller than the dividend. Time value is the part of the call price above what it would be worth if exercised today.

If that happens, your shares are sold at the strike, you keep the premium, and you don't get the dividend. My page on early assignment and the dividend walks through the rule.

A worked example (an illustration, not a trade idea)

The numbers are for a made-up telecom stock, XYZ. They are not Verizon's or AT&T's prices.

You own 100 shares of XYZ, bought at $40. You sell a 45-day $42 call for $0.50. You collect $50. An ex-dividend date falls inside the trade. The next dividend is a hypothetical $0.65 a share, $65 on your 100 shares.

Early assignment. Two weeks in, XYZ jumps to $43.50 on news. The day before the ex-dividend date, your call trades at $1.55. That is $1.50 of in-the-money value plus only $0.05 of time value, less than the $0.65 dividend. The call owner exercises. Your shares are sold at $42.

The top row is a gain, but it skipped the $65 you were holding the stock for. The bottom row is the real risk: the premium and the dividend together only cover $1.15 a share of a drop. Below $38.85, you are losing money.

How people handle the dividend

You have three choices before an ex-dividend date with a call open:

1. Sell the call above the price and leave it. A strike that stays out of the money is very unlikely to be exercised early. The premium is smaller.
2. Pick an expiry that ends before the ex-dividend date. Then the dividend question never comes up.
3. Buy the call back or roll it if it's in the money the day before. That costs money, so work it out first; see rolling before ex-dividend.

The mistake is not checking at all. Put both ex-dividend dates on your calendar the day you sell the call. Each company lists them on its investor-relations page.

Verizon or AT&T: is there a difference for this?

For covered calls, the two behave alike: quiet, dividend-led, with thin premiums. The differences that matter to you are the ones you can check today:

• The share price, which sets the cash for 100 shares.
• The dividend size and the ex-dividend dates, which set how much an early assignment could cost you.
• The spread on the strike you want. On a cheap stock, a few cents of spread is a big share of a small premium. See checking option liquidity.

A dividend is never promised. A board can cut one, and the stock usually falls when it does. Don't treat the dividend as a floor under the shares.

Account note: covered calls are widely allowed in a TFSA or RRSP, and in many US retirement accounts. US dividends paid to a TFSA usually have tax withheld at source, so check with your broker how that works for you.

In the wheel strategy, the covered call is the second half: you got the shares from a put, then sell calls on them. On a quiet dividend stock, many people run the call half far above the price, so the shares and the dividend stay put. They accept a tiny premium in return. For more on choosing which names fit, see dividend stocks for the wheel.

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