Barchart's Advanced Options and Covered Call Screener helps you find the best equity option calls using numerous filters to scan for those with a high theoretical return.
About Covered Calls
Selling covered calls is an investment strategy that can be used to generate additional income from the stock positions you already own. Over 75% of options are held until expiration and expire worthless.
Using a covered call strategy, you can sell options on the stocks you own (providing downside protection on the stock), and earn the premium income if the option expires worthless. You earn a premium (income) from writing the call, and still have all the benefits of owning the stock (dividends), provided the call is not exercised before it expires.
- You own (are long) at least 100 shares of a stock.
- You sell (short) a call option against that stock (1 option controls 100 shares).
Thus, 1 Covered Call = long 100 shares of a stock + short 1 call option.
The aggregate operation is typically known as covered call writing.
It is called “covered” because should the option be exercised you own the stock required to fulfill the delivery obligation for the 100 shares, as opposed to selling a naked call, where you don’t own the underlying stock, which represents an unlimited liability for the seller. When writing covered calls you are protected against unlimited losses in the event that the strike price dips below the market price of the underlying asset. A similar strategy to writing a covered call is to sell a naked put.
Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options. Since a Covered Call is written on stocks you own, a typical filter to add to this screener is the Symbol filter.
So you can focus on the best options, the screener starts by removing certain puts and calls from all strategies:
- Break even must be greater than or equal to 0%.
- The stock price must be greater or equal to 1.00
- The options volume must be greater than or equal to 100.
- The bid amount must be greater than 0.00
- Open interest must be greater than or equal to 100.
- The option must not be an "adjusted" option (Ex: The option cannot be based on a split stock).
- Moneyness is between -25% to -5% (OTM)
- If the ask is greater than or equal to $5.00, the spread between the bid and ask must be less than or equal to 10% of the ask.
- If the ask is between $2.00 and $5.00, the spread between the bid and ask must be less than or equal to 15% of the ask.
- If the ask is between $1.00 and $2.00, the spread between the bid and ask must be less than or equal to 25% of the ask.
- If the ask is less than $1.00, the spread between the bid and ask must be less than or equal to 50% of the ask.
The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you've added to the screener.
Covered Calls Strategy: The page is initially sorted by descending "Potential Return". The strategy is updated every 20 minutes throughout the day with new option candidates. The screener displays probability calculations based on the delayed stock price at the time the strategy is updated.
- Symbol - the underlying equity. Clicking on the symbol will take you to the current quote page.
- Last - the delayed stock price at the time the strategy is updated for the underlying equity.
- Strike - the price at which the underlying security can be bought if the option is exercised.
- Exp Date - the expiration date of the option
- Bid - the premium to purchase this call option.
- Net Debit - the cost to enter this covered call, or the break-even point for the call on expiration date. Net Debit is calculated as (Stock Price - Call Bid). If the stock price is HIGHER than the call's Net Debit on expiration, the call will make a profit.
- Break Even% - the likelihood of the strategy breaking even, as calculated using the 'Monte Carlo' simulation.
- Volume - the total number of options traded in the current day for a contract.
- Open Interest - the total number of open option contracts in the market for a particular contract. The more popular the contract is with options traders, the greater the Open Interest. An opening transaction will increase the Open Interest, and a closing transaction will decrease it.
- Delta - Delta measures the amount an option price will change as a result of a $1.00 price change of the underlying security. Since call options rise and fall directly with the price of the stock, they are assigned deltas between 0 to 100.
- Potential Return - the potential return for this strategy, assuming the stock price remains the same (i.e. flat) until the option expires. For a covered call, Potential Return is calculated using Time Premium, your profit (income) per share between now and option expiration.
- Time Premium = (Strike + Call Bid - Stock Last Price)
- Calculate Net Debit: (Stock Last Price - Call Bid)
- Potential Return = Time Premium / Net Debit
- Annualized Potential Return - the annualized percentage of potential return for this covered call assuming the stock price remains the same (i.e. flat) until the option expiration. It is calculated as (Potential Return / Days Held) * 365 where Days Held is the number of days remaining until expiration.
Dividend & Earnings View
- Dividend - the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock's price is lowered by the amount of the dividend that was just paid.
- Dividend Ex-Date - the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
- Earnings Date - The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.