Best Stocks for Covered Calls

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Air Industries (AMEX: AIRI)

1.26 0.01 (0.8%)
1.24 - 1.29
0.9386 - 2.46

Air Industries Group Inc. is a premier manufacturer of aircrafts for the armed forces. It manufactures a wide range of products that includes actuators, cylinders, drag beams, drag braces, flight controls, landing gear, thrust struts and turbine engine components. Air Industries also provides services such as drilling, deep hole drilling, gun drilling, trepanning, hydraulic testing and assembly.

The aviation stock has a market cap of $38 million, a 52-week low of $0.6 and a 52-week high of $3.36. Air Industries trades more than 55,245 shares per day. It generated revenue of $54.5 million in 2019.

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Oracle (NYSE: ORCL)

82.87 0.57 (0.69%)
81.84 - 83.24
50.91 - 85.03

Oracle’s 6-month chart looks relatively stable other than the significant dip to the $40 region seen during the March coronavirus market lows. The multinational computer technology corporation did not achieve any major industry headlines; it just plugged along, doing its job. If you are looking for a decent covered call play, Oracle may be a very good choice.

You can also take advantage of the dividend, which hovers below 1.75%. It is always good to try to hold onto the stock while selling calls to capture the dividend for yet another income boost to help buffer any losses on the stock position.

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Walmart (NYSE: WMT)

140.80 0.92 (0.66%)
139.86 - 140.85
117.01 - 153.6597

When American society goes into shock, the country tends to fall back on Walmart in more ways than one. The stock is usually solid because it maintains sales in recessions — low-cost staples never go out of style. Even if it takes a hit, that movement is usually cushioned by investors who are looking for market safe havens.

During the COVID crisis, Walmart showed it could survive the pandemic and the almost complete dominance of Amazon in nearly every other retail space. Walmart’s stock price never closed below triple digits and demonstrated good support ahead of the psychological $100 level that can help protect a covered call position from losses.

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Acadia Healthcare Co (NASDAQ: ACHC)

67.80 0.69 (1.03%)
66.86 - 67.99
23.63 - 67.99

Acadia Healthcare is a medical research and development company. It develops and operates a network of behavioural health facilities across the U.S. It provides psychiatric and chemical dependency services to its patients in hospitals, specialty treatment facilities, residential treatment facilities, outpatient clinics and therapeutic school-based programs.

The healthcare stock has a market cap of $3 billion and has an EPS of $1.20. It has high liquidity and trades more than 1.1 million shares per day. Acadia Healthcare generated revenue of $3 billion in 2019.

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147.69 0.09 (0.06%)
146.79 - 148.12
126.53 - 148.85

PepsiCo is one of the largest food and beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The firm segments its operations into five primary geographies, with North America (comprising Frito-Lay North America, Quaker Foods North America, and North America beverages) constituting over 60% of consolidated revenue.

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Biggest Movers of the Day

If you want to focus on the covered call strategy, use this list to illustrate what stocks to stay away from. Big moves, either way, do not bode well for the covered call strategy. Premarket movers are not good candidates, either. Avoid stocks that get major news coverage or have a notable risk event coming up soon (like a high profile earnings announcement) that can potentially cause volatile price action.

You might take a look at some stocks under $20 to speculate on their potential future growth, however, since the most you can lose on these stocks is what you paid for them.

The data provided below is intended for educational purposes only, we have included the session dates for your reference.

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Premarket Stocks for Covered Calls
Symbol Last Price Change % Change Trade
HBANM 26.631 15.331 135.67% Trade
NOVN 14.7861 5.746 63.56% Trade
BAOS 4.48 1.32 41.77% Trade
UONE 20.47 5.02 32.49% Trade
PROG 3.1915 0.701 28.17% Trade
EQOS 8.34 1.83 28.11% Trade
ICON 3.12 0.67 27.34% Trade
CARV 15.335 2.905 23.37% Trade
XIN 3.61 0.68 23.2% Trade
VXRT 8.7487 1.579 22.01% Trade
Symbol Last Price Change % Change Trade
ORPH 9.4 -11.6 -55.24% Trade
RCON 6.19 -6.55 -51.42% Trade
CRIS 8.0001 -4.68 -36.91% Trade
APTO 3.72 -1.81 -32.74% Trade
GLTO 5.58 -2.42 -30.25% Trade
AEHL 3.22 -0.88 -21.47% Trade
HTBX 7.61 -1.99 -20.73% Trade
MEDS 5.31 -1.36 -20.39% Trade
FMTX 22.76 -5.29 -18.86% Trade
CVI 19.0525 -4.388 -18.72% Trade
Market Stocks for Covered Calls
Symbol Last Price Change % Change Trade
NOVN 14.45 5.41 59.84% Trade
AMST 4.16 1.39 50.18% Trade
PTIX 3.5 0.83 31.08% Trade
GBS 4.63 1 27.54% Trade
CMMB 25.3 5.3 26.5% Trade
RCON 16 3.26 25.58% Trade
PGEN 8.66 1.67 23.89% Trade
GRAY 6.56 1.03 18.62% Trade
APTX 3.8 0.59 18.38% Trade
MX 26.9 3.85 16.7% Trade
Symbol Last Price Change % Change Trade
ORPH 10.84 -10.16 -48.39% Trade
APTO 4.23 -1.3 -23.51% Trade
CRIS 9.7 -2.98 -23.51% Trade
CVI 18.91 -4.53 -19.33% Trade
GLOr 0.051 -0.01 -15.99% Trade
HTBX 8.11 -1.49 -15.53% Trade
USIO 5.418 -0.992 -15.48% Trade
QUMU 3.91 -0.71 -15.37% Trade
AEHL 3.5 -0.6 -14.64% Trade
DBGI 3.46 -0.55 -13.72% Trade
After Hours Stocks for Covered Calls
Symbol Last Price Change % Change Trade
MDIA 7.2 3.36 87.5% Trade
LXEH 11.04 2.78 33.65% Trade
XBIO 2.51 0.31 14.09% Trade
ETTX 3.05 0.37 13.8% Trade
INTT 16.48 1.85 12.64% Trade
DKL 49.25 4.96 11.19% Trade
COE 11.24 0.92 8.91% Trade
PROG 3.47 0.26 8.09% Trade
CARV 16.65 1.21 7.83% Trade
OWL 15.4 1.09 7.61% Trade
Symbol Last Price Change % Change Trade
IKT 5.17 -0.82 -13.69% Trade
RCMT 3.41 -0.4 -10.5% Trade
PTIX 2.71 -0.26 -8.76% Trade
CVA 16.37 -1.28 -7.26% Trade
BAOS 4.65 -0.35 -7% Trade
RCAT 3.21 -0.19 -5.59% Trade
NMRD 13.57 -0.79 -5.51% Trade
ONVO 8.13 -0.46 -5.36% Trade
UONE 19.48 -1.1 -5.35% Trade
FUV 13.45 -0.67 -4.75% Trade

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Selling covered calls is an income-generating strategy that you can use to increase your returns on stock holdings. It’s also a strategy to use to buffer your losses if you believe the market will have a slight pullback in the near future. Some investors use them in tandem with dividend payouts to generate income during retirement, although you could incur losses during a market decline. If you’re willing to bear the risks involved, covered calls could be well worth your time to research. 

Knowing the strategy is only a part of the execution. To maximize using covered calls, you should select stocks you believe will not experience highly volatile movements during the term of your options contract. Let’s go through a few good candidates that you might be able to use in a stable to rising market.

Overview: Covered Calls and Stocks

Selling a covered call means writing a call option against shares of a stock that you own. This combination has the same risk profile as selling a naked put option, and so it exposes you to virtually unlimited downside risk while having only limited upside potential up to the strike price. If you sell a call option, that call loses value if the stock price declines or the market stays relatively stable while time passes. 

With the covered call strategy, if the stock price rises, the gain in the value of your shares completely covers the losses from your call option beyond the option’s strike price. At expiration, you will show a net gain if the stock’s price has risen up to or beyond your sold option’s strike price, although you’ll need to either give up your stock or close out the option if the option ends up in-the-money at expiration. Furthermore, if your stock falls in value by more than the premium you sold the call for, you stand to lose money just as if you had sold a naked put option. 

Covered call writing can also lower your cost basis for buying stock. If you own $13,000 worth of Walmart split among 100 shares, your cost basis is $130. If you sell a covered call option on 100 shares against those shares for $115, your cost basis drops by $1.15 per share. It is as if you bought the shares at $128.85 instead of $130, although your profit potential is eliminated if the market rises above the strike price at expiration. 

Although this combined position has unlimited downside risk, it could present an attractive proposition if you tailor your portfolios for income rather than growth. It’s also a good consideration if you expect a relatively stable to slightly rising market in a stock over a particular time frame. 

Best Online Brokers for Covered Calls

The best stock candidates for writing covered calls on are usually big, stable, blue chip companies listed on the major stock exchanges. These choices are usually available from reputable brokers that offer stock options trading to their clients. Take a look at these market leaders and compare their feature sets to ensure the closest match to your needs and preferences.

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Features to Look for in Covered Call Stock Plays

  1. Sideways market activity: Options are contracts that can lose their time value as they get closer to expiration, although their time value also depends on other factors like volatility levels and the proximity of the option’s strike price to the prevailing market. If you’re selling a covered call against stock you own, you typically profit as time moves on given a stable stock price. 
  2. Uneventful stock: The less a stock is featured in news events, the less likely it will be affected by the resulting drastic price changes as market participants engage in emotional buys and sells.
  3. A clear and unremarkable schedule: You can’t avoid unexpected shocks to a stock or a market, but you can look ahead and choose stocks with issuing companies that are not planning anything that could potentially create volatile trading conditions. Risk events you would probably want to avoid include product trials, mergers and acquisitions, earnings announcements and leadership changes.

Take Cover!

Dividend investors who don’t take a look at selling covered calls may be missing out on some extra income in relatively stable and predictable markets. There is a risk of holding stock in your portfolio, and you can adjust that risk by selling covered calls. Selling covered calls is a strategic way to earn income to cap your profits while also buffering the risk of virtually unlimited losses in case your stock’s price falls. 

In general, stocks under $10 and stocks under $5 are usually not good candidates for the covered call strategy. Stick to large-cap blue chips instead due to their greater liquidity that tends to result in more orderly markets. If you need more help with market strategies, consider checking out the Benzinga options newsletter. Bookmark this site for more up-to-date information on covered calls and other strategies that can help you pull the most out of the market.

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