A couple of days ago a reader asked me how to find the best stocks to write covered calls on?
Before answering this question, let me give you a brief background on my options trading career.
I’ve been actively training options for about two years.
My first trades actually were puts, not calls - I was selling put options, collecting premium, and waiting for a contract to expire worthlessly, just to start over. Rinse and repeat.
Just later I started to learn about adjustments and other option trading techniques.
I did my research and as I understood it will take me some time before I will learn all the stuff (I’m still learning today) - I decided to start safely with the-so called dividend aristocrat stocks. and one such was (is) AT&T stock (T:NYSE)
T stock has one of the highest dividend yields among dividend aristocrat stocks of about 7% Paying 0.52 cents every quarter (before tax).
In a good year combining dividends with covered calls, could yield up to 20% of income from T annually.
There are always risks involved, even when selling covered calls, and the main risk is that stock price could fall significantly after buying it. No free lunch here.
I started collecting premiums by writing put options on T stock, it felt safe, as the worst that could happen - I would get assigned but if so, I would still keep a good stock, paying me dividend and I could start selling covered calls on it. Just later I learned there is terminology for this: wheel strategy, triple income, and so on.
Selling covered calls and cash-secured puts with T stock
In 183 days I have collected in premiums almost $200 from T stock (these are both calls and puts). Roughly that would translate into $400/year + dividend of $200.
$600 income (before) tax on a $30 stock is about 20% yield
This is what I do still today - I look for relatively safe stocks, preferably from the dividend aristocrat list, depending on the situation, either I start by writing puts until get assigned or just buy 100 shares and start writing covered calls on it.
Here are a few tickers I have traded relatively safe: NYSE:O, NYSE: T, NASDAQ: PBCT
Here you go - if you are looking for some of the best stocks to write covered calls on - I suggest starting with stocks from the dividend aristocrat list or the Dow Jones 30 list.
Not to miss an important update, make sure you have subscribed to our free newsletter