Covered Call Screener Results For January 26th

Covered calls are a great strategy to add to any portfolio, particularly in this era of low yields. Covered calls can offer enhanced yield from stock holdings, in some case, that can be a significant increase.

To trade a covered call we need to own (or buy) 100 shares of a stock and then sell a call option against that stock position.

The goal is to generate income from the stock holding in addition to any dividends. The premium received from selling the call also covers a small decline in the stock price. However, the trade off is that stock gains are limited above the call option strike price.

High volatility stocks have the highest return potential with covered calls, but they also have the highest risk of an adverse price movement. It’s all about finding a strategy that fits the investors risk tolerance.

Let’s look at a few examples using Barchart’s Covered Call Screener.

This first example shows the results of the screener with the default parameters selected.

This result returns some stocks with very low market capitalization and, while the returns look great, the risks can also be very high.

Let’s add a filter for Market Cap over 40 billion and 60-month Beta below 1.00. We’ll also change the Moneyness filter from -25% to 0% and add a 50% Buy rating criteria.

Now, we’re seeing some more mainstream names such as SBUX, CSCO, V, KMI and MCD.

SBUX Covered Call Example

Let’s evaluate the first line item, a covered call on SBUX. Buying 100 shares of SBUX would cost $10,698. 

The February 107 strike call option was trading yesterday around $3.30, generating $330 in premium per contract for covered call sellers.

Selling the call option generates an income of 3.18% in 22 days, equalling around 50.51% annualized. 

The breakeven price is equal to the stock purchase price less the premium received, which in this case is 103.68.

SBUX is currently followed by 22 analysts with 8 Strong Buy ratings, 1 Moderate Buy rating and 13 Hold ratings. 

The Barchart Technical Opinion rating is a 100% Buy with a strongest short term outlook on maintaining the current direction.

The current IV Percentile is 27% which means that the current level of implied volatility is higher than 27% of all occurrences in the last 12 months.

CSCO Covered Call Example

Let’s look at another example, this time using Merck.

Buying 100 shares of CSCO would cost $4,798. The February 48strike call option was trading yesterday around $1.57, generating $157 in premium per contract for covered call sellers.

Selling the call option generates an income of 3.38% in 22 days, equalling around 53.69% annualized. 

The breakeven price is 46.41.

CSCO is currently followed by 20 analysts with 7 Strong Buy ratings, 1 Moderate Buy rating, 11 Hold ratings and 1 Strong Sell Rating. 

The Barchart Technical Opinion rating is a 56% Buy with a strengthening short term outlook on maintaining the current direction.

The current IV Percentile is 51% which means that the current level of implied volatility is higher than 51% of all occurrences in the last 12 months.

Please remember that options are risky, and investors can lose 100% of their investment.  This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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