6.8% Yield With Small Risk

We live in a low yield environment. Interest rates on savings are virtually 0%.
Here is a clever way to get a higher yield on cash. The yield in this example is 6.8%.
But there is risk. But to me the risk is acceptable.

The strategy is to buy good stocks with good dividends
Then write deep in the money calls on the stocks out a year or so as long as you can get some premium on the position.

Here is the example

500 shares of Procter and Gamble bought at $65 a share

cash outlay is $32,507.95

write 5 calls dated 1/19/13 at a strike price of 60, price is $6.87 so you get cash back of

$3,438.12

so the net cost of the position is

$29,069.83

over a year the dividend will be $1,050
if the stock closes above $60 on 1/19/13 the position will be called and you will get back $30,000

total cash returned to you will be $31,050 on a cash outlay of $29,069.83

so income from this position will be $1,980.17 for a yield of 6.8%

the risk is that the stock drops below $60, a 7.7% decline.
but the premium you are getting is $1.86 per share so you would not really lose unless the stock dropped to $58.14 which would be a 10.5% decline.

Furthermore, if the stock drops you can always buy back the calls at a profit and write more calls at a lower strike price.

Is this too complicated? For most people it is too complicated and that is why it is a genuine opportunity

The other "risk" of writing covered calls is that the stock goes up a lot. But there the risk is just that you don't make as big of a profit.