Here are the best stocks to write covered calls. But first we consider exactly what a covered call is and what we need to look for in a stock to be used in the strategy.
The investment and trading behind covered calls might not be the most intuitive process in the world, but they offer important opportunities to make profits on an existing portfolio.
Because of that, any trader interested in a more diverse trading approach should consider them as an option. Here is a breakdown of writing covered calls, as well as a short list of ideas for stocks that could serve the same purpose.
Covered Call Explained
A covered call represents a position that includes shares of a stock, but also a call option on that same underlying stock. When a trader executes a covered call, a call option is sold (usually out of the money), but the trader keeps the underlying stock.
Covered Call Stock Selection
Stocks great for this strategy are those that are stable – volatile stocks might provide higher premiums due to elevated implied volatility but are difficult to manage. The sold call would often get called away on exercise.
The stock should also have decent long term prospects. The perfect covered call scenario is for the stock to move up steadily, but not by too much that it rises above the strike price of the sold call.
A regular series of options premium received, in addition to any dividends on the owned shares, plus a decent capital gain is the dream scenario.
Great Stocks For Covered Calls: Examples
Here then are some great stocks for writing covered calls
Verizon Communications (NYSE: VZ)
As one of the biggest companies in the domain of tech and communication services, Verizon Communications has two segments of operation.
One is focused on the consumers and the other on the business. More precisely, Verizon Consumer Group offers wireline and wireless communication services to consumers. Verizon Business Group provides institution-oriented solutions like network security, communication products, video and data services, Internet of Things (IoT) products, and much more.
All of these are sought-after and will continue to be needed both in terms of business and consumer perspectives.
The company expects a positive outlook in the coming period and even fluctuations in the tech stock will likely not change that in the long run.
So decent long term prospects, regular dividends plus few surprise moves make this a great choice.
Pfizer Inc. (NYSE: PFZR)
Pfizer Inc. is a global biopharmaceutical business that is focused on research. The same company is working in the domain of biopharmaceutical products, which covers their entire life cycle.
It begins with the discovery and development process of products like medical drugs, vaccines, and so forth. The cycle ends with the marketing, sales, and global distribution of these products.While it was always massive, the COVID-19 coronavirus pandemic brought it into the limelight on an unprecedented scale.
2020 saw it successfully develop a COVID-19 vaccine in a record timeframe and 2021 saw its total revenue increase 106 percent year on year. Prior to the pandemic, the stock of this global pharmaceutical company saw substantial growth. The coming period will almost certainly offer a similar if not stronger outlook.
As one of the biggest companies in the domain of tech and communication services, Verizon Communications has two segments of operation.
One is focused on the consumers and the other on the business. More precisely, Verizon Consumer Group offers wireline and wireless communication services to consumers. Verizon Business Group provides institution-oriented solutions like network security, communication products, video and data services, Internet of Things (IoT) products, and much more.
All of these are sought-after and will continue to be needed both in terms of business and consumer perspectives.
The company expects a positive outlook in the coming period and even fluctuations in the tech stock will likely not change that in the long run.
So, again, good prospects, regular dividends plus few surprise moves make this a great choice.
Ford Motor Company (NYSE: F)
Out of all three ideas for best stocks to write covered calls, Ford Motor Company is easily the most famous one. This automobile company has been around since 1903 when the legendary Henry Ford established it.
Presently, it works on designing and manufacturing Ford trucks, cars, and utility vehicles, as well as its line of Lincoln luxury cars. It has three different segments. The first is Automotive, which works on the development, manufacture, distribution, and services of its vehicles.
The second segment is Mobility, which operates in the domain of autonomous vehicles. The last segment is Ford Credit, which focuses on financing and leasing activities in the field of vehicles.
This huge automotive company has big plans for the future, including a heavy development of autonomous and battery-powered vehicles. Electric vehicles, which will definitely be a huge trend in the coming decades, could see the profits of Ford Motor Company rise significantly in the 2020s.
Additionally, the company will invest huge amounts into its battery research, development, and production. This will allow it to take on a bigger role in the technology market, making the potential for growth even bigger.
So, yet again, a good stable company with lots of potential for long term growth.
With these ideas for great covered calls stocks, traders can expand their portfolio and also find additional opportunities for generating a profit.