Best stocks for covered call?

T

trendisyourfriend

Hi guys, what kind of stocks do you look for when looking to trade covered calls?

I've been reading IBD's Options section and, over the past 2 years, they've recommended covered calls for the following stocks:

XOM (Exxon Mobil), MSFT (Microsoft), COIN (Coinbase), BBY (Best Buy)

Is there any criteria that you look for in terms of share outstanding, float, whether it's a blue chip stock etc? Do you like stocks that aren't volatile?

Thanks
 
trendisyourfriend said:
Hi guys, what kind of stocks do you look for when looking to trade covered calls?

I've been reading IBD's Options section and, over the past 2 years, they've recommended covered calls for the following stocks:

XOM (Exxon Mobil), MSFT (Microsoft), COIN (Coinbase), BBY (Best Buy)

Is there any criteria that you look for in terms of share outstanding, float, whether it's a blue chip stock etc? Do you like stocks that aren't volatile?

Thanks
More...

Your covered call only "works in your favor", so to speak, if the stocks stays flat-ish or declines. A constant and disciplined practice of covered call writing can be legit for long-term B&H... assuming you don't mind missing out on the bulk of any big up-move, should it occur. If you're trying to trade them in the short term, you're losing capital appreciation if the stock rises.
 
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trendisyourfriend said:
Hi guys, what kind of stocks do you look for when looking to trade covered calls?

I've been reading IBD's Options section and, over the past 2 years, they've recommended covered calls for the following stocks:

XOM (Exxon Mobil), MSFT (Microsoft), COIN (Coinbase), BBY (Best Buy)

Is there any criteria that you look for in terms of share outstanding, float, whether it's a blue chip stock etc? Do you like stocks that aren't volatile?

Thanks
More...
Covered calls capture the risk premium of options. You need to select stocks where the implied volatility is higher than the statistical volatility. Otherwise you just trade leveraged beta
 
MrMuppet said:
Covered calls capture the risk premium of options. You need to select stocks where the implied volatility is higher than the statistical volatility. Otherwise you just trade leveraged beta
More...

Thanks for the reply MrMuppet. Would you ever trade a covered call on a more volatile growth stock, like NVDA?
 
Some don't like covered calls because it caps the profits but it doesn't have to.
I continue to roll the short call up & out if the stock continues to rise.
Eventually the rise will end & the call will expire worthless and you can sell another call.
It's not big profits but it's like a dividend yield if the stock doesn't rise enough.

You asked about NVDA.
Stock closed near 198 today.
If you were short the Sept 215 Call which closed ~2.67 today you could roll that to the Oct 227.50 for ~2.82 so an additional credit of .15($15) and added 12.50($1,250) to the profit potential before getting called away.
 
As you know,a covered call is no different than a short put.As Mr Muppet pointed out,the implied vol should be higher than realized or your forecast vol.

Just as important,are you gettingg an acceptable rate of return should you be called away.How does that compare with the provided cushion on the downside?




trendisyourfriend said:
Hi guys, what kind of stocks do you look for when looking to trade covered calls?

I've been reading IBD's Options section and, over the past 2 years, they've recommended covered calls for the following stocks:

XOM (Exxon Mobil), MSFT (Microsoft), COIN (Coinbase), BBY (Best Buy)

Is there any criteria that you look for in terms of share outstanding, float, whether it's a blue chip stock etc? Do you like stocks that aren't volatile?

Thanks
More...
 
taowave said:
As you know,a covered call is no different than a short put.
More...

That doesn't seem right to me. I would think it's quite different. A covered call is something you sell. A put is something you buy. (In this scenario)
If you have a stock that's flat or slowly appreciating, selling an out of the money covered call is going to give you income every month. Buying a short put will just cost you money every month in that scenario.

Selling a covered call also doesn't provide any "cushion" on the down side. If the stock falls 50%, you're out 50%. Buying a put protects from a fall in the stock.

Personally, I'm not a fan of getting short because even if your analysis is correct that the value of something should be lower, you also need something to happen that convinces everyone else that you are right with your time frame.
I do like the covered call strategy because you get money every month and the worst that happens (as compared to not selling the out of the money calls) is that you miss out on some appreciation.

One other thing I've found interesting:
Credit Suisse has some covered call ETFs. I notice those seem to have a large short interest against them. I suspect because selling short a covered call ETF is a great way to cap the downside risk of getting short.
 
Oh boy..
You need to read a basic book on options and understand synthetic structures and their equivalants..

You are way off


engineering said:
That doesn't seem right to me. I would think it's quite different. A covered call is something you sell. A put is something you buy. (In this scenario)
If you have a stock that's flat or slowly appreciating, selling an out of the money covered call is going to give you income every month. Buying a short put will just cost you money every month in that scenario.

Selling a covered call also doesn't provide any "cushion" on the down side. If the stock falls 50%, you're out 50%. Buying a put protects from a fall in the stock.

Personally, I'm not a fan of getting short because even if your analysis is correct that the value of something should be lower, you also need something to happen that convinces everyone else that you are right with your time frame.
I do like the covered call strategy because you get money every month and the worst that happens (as compared to not selling the out of the money calls) is that you miss out on some appreciation.

One other thing I've found interesting:
Credit Suisse has some covered call ETFs. I notice those seem to have a large short interest against them. I suspect because selling short a covered call ETF is a great way to cap the downside risk of getting short.
More...
 
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