Covered Call Screener Results for August 4th

Covered calls are a great strategy to add to any portfolio, and 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 and sorted by return potential.

This result returns some stocks with very low market capitalization and, while the returns look great, the risks can also be very high. There are also 1296 results, so let’s try and narrow things down a little

Let’s add the following filters:

Now, we’re seeing some more mainstream names such as SBUX, SCHW, TGT, MRK and OXY.

SBUX Covered Call Example

Let’s evaluate the first SBUX covered call. Buying 100 shares of Starbucks would cost $10,337. 

The August 21st $107-strike call option was trading yesterday for around $1.16, generating $116 in premium per contract for covered call sellers.

Selling the call option generates an income of 1.1% in 18 days, equalling around 22.9% annualized. 

If the stock rises above the strike price of $107 at expiration, the return would be 5.3% which is 107.3% annualized.

The breakeven price is equal to the stock purchase price less the premium received, which in this case is $102.21.

Starbucks is currently followed by 34 analysts with 14 Strong Buy ratings, 2 Moderate Buy rating, 14 Hold ratings, 1 Moderate Sell rating and 3 Strong Sell ratings.

The Barchart Technical Opinion rating is a 88% Buy with a Weakening short term outlook on maintaining the current direction.

Long term indicators fully support a continuation of the trend.

Relative Strength just crossed below 50%. The market is indicating support for a bearish trend.

The current IV Percentile is 29% which means that the current level of implied volatility is higher than 29% of all occurrences in the last 12 months.

SCHW Covered Call Example

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

Buying 100 shares of SCHW would cost $10,587. The October 16th $115-strike call option was trading yesterday for around $1.70, generating $170 in premium per contract for covered call sellers.

Selling the call option generates an income of 1.6% in 74 days, equalling around 8.0% annualized. 

If the stock rises above the strike price of $115 at expiration, the return would be 10.7% which is 52.8% annualized.

The breakeven price is $104.17.

Schwab is currently followed by 23 analysts with 13 Strong Buy ratings, 4 Moderate Buy ratings, 5 Hold ratings and 1 Moderate Sell rating.

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

The current IV Percentile is 20% which means that the current level of implied volatility is higher than just 20% 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.