Best Stocks for Covered Calls
The best covered call stock is still a stock worth owning.
The covered call conversation usually starts in the wrong place. Most investors ask "which stock has the best premium?" The right question is "which stock would I be comfortable holding and happy to sell at this price?"
Screen Stocks in the AppThe Covered Call Stock Checklist
Before selling a covered call, the stock should pass these checks. Think of them as a filter, not a formula.
Quality business with durable advantages
Strong free cash flow, consistent earnings, low debt, and a competitive moat. If the stock gets called away and you want to buy it back later, you want it to still be a quality company.
Strike price is above your fair value estimate
If a $100 stock has a fair value of $110, do not sell a $105 call. You would be agreeing to sell below what the business is worth. Set the strike above fair value, or do not sell the call at all.
Adequate options liquidity
Wide bid-ask spreads eat into premium income. Look for stocks with open interest and daily volume that allow you to enter and exit at a fair price.
No major catalysts within the expiration window
Earnings announcements, FDA decisions, or major contract announcements can spike a stock well past your strike. If a catalyst is coming, shorten the expiration or skip the trade.
You are comfortable being assigned
Assignment means your shares are gone at the strike price. Before you sell the call, ask: "Am I happy selling this company at this price?" If the answer is yes, proceed.
Stocks to Avoid for Covered Calls
Positions you want to hold for decades
Selling covered calls on a wonderful compounder is risky. If it runs 40% in a year, you cap yourself at the strike. Protect your best ideas.
Stocks with upcoming earnings
A positive earnings surprise can push shares well past your strike, forcing you to sell at a price that underrepresents the company's new earnings power.
Weak or declining businesses
High premium on a bad business is a trap. If the stock collapses, you still hold 100 shares of something you should not own.
Thinly traded options with wide spreads
A $1.00 wide bid-ask on a $2.00 premium means you lose half your income just entering the trade. Only sell calls on actively traded option chains.
How Wall St Yardie Helps
Before you pick a strike, you need a fair value estimate. Wall St Yardie scores business quality, calculates intrinsic value, and builds a buy price so you know where covered calls make sense and where they do not. Simplify the process with Wall St Yardie.
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