Covered calls are a popular way to generate income from an equity portfolio. But, of course, the challenge is finding stocks that offer the right balance of safety, yield, and upside potential. Fortunately, covered call screeners can simplify the process by automatically generating a list of ideas from a given set of criteria.
Let’s take a look at how to use optionDash, one of the best free covered call screeners, to identify the best opportunities.
Getting Started
Covered calls involve selling a call option against an existing long equity position. If the option fails to reach the strike price, it expires worthless and you keep the option premium, generating a form of portfolio yield. If the option reaches or exceeds the strike price, you’re obligated to sell the stock or must buy back the option prior to expiration to avoid the automatic sale.
The challenge is finding companies that aren’t at risk for a significant drop in value (e.g., strong fundamentals) while ensuring that the covered call option provides enough yield to make the strategy worthwhile. The biggest tradeoff of the covered call income is the limited upside beyond your call’s strike price. Without a screener, it’s impossible to calculate the annualized return and other key metrics for every stock to find the best opportunities.
Fortunately, optionDash provides both a free and premium screener. When you sign up, your free account will come with a 14-day trial of premium features. You can subscribe at the end of the trial period to continue using the premium features or downgrade to a free account. The premium account is available for $39 per month or $349 per year.
Using the Screener
optionDash provides institutional-grade screening tools at a price that’s accessible to retail investors.
optionDash makes it easy to quickly find opportunities. Source: optionDash
The screener provides several critical metrics:
- Downside Protection: How much the stock could decline before you breakeven on the position—or how much cushion you have on the trade.
- If Called Return: What the return would be if the call option that you wrote was exercised and you had to deliver the stock.
- Annualized Return: The return in annual terms for easier comparison to other strategies that you may be considering.
- Ex-Dividend Earnings: The date of the next earnings announcement, which tends to introduce a lot of volatility.
- Dividend Yield: The stock’s dividend yield, which could impact whether the option is exercised and its value.
Each of these metrics is a column where you can sort in ascending or descending order. So, for example, you can sort Downside Protection in descending order to identify the covered call options with the most downside protection or sort by Annualized Return to find the most profitable covered call opportunities.
You can also click on the Advanced button to access more screening tools. For instance, you can filter out specific sectors, add value requirements, or exclude companies with upcoming earnings. These capabilities make it easy to fine-tune your screens and identify opportunities that you’re most comfortable trading.
The platform’s most unique feature is a radial chart showing proprietary quality, value, and trend scores. At a glance, you can quickly see each of these scores on any given screen. You can also filter out companies based on their score by clicking on the Advanced button, making it easy to filter out low-quality or poorly-trending companies.
Finally, you can create a watchlist by clicking on the three dots to the right of each row. Then, you can access your watchlist at any time by clicking on the “My Watchlist” tab near the top of the page. You can also view other popular watchlists by clicking on the Idea List tab, including the Dividend Aristocrats and the S&P 500 index.
Analyzing Opportunities
optionDash makes it easy to analyze opportunities in detail after you’ve assembled a watchlist of opportunities.
Example of optionDash’s fundamental analysis. Source: optionDash
The company details page provides some common elements, such as a price chart and critical metrics, and some unique details, such as a drawdown history chart and the proprietary quality, value, and trend scores. You can also access additional information in the other tabs across the top of the page to enhance your analysis.
The other tabs include:
- Dividends: You can see dividend trends, including dividend yield over time and dividends paid over time.
- Seasonality: You can see the stock’s historical performance during certain months, which could indicate its likely future performance.
- Valuation: You can compare the stock’s current valuation against its historical valuation and access different valuation scores.
- Analyst: You can see different analyst opinions and the aggregate analyst consensus on a stock.
Trading Covered Calls
optionDash makes it easy to find compelling covered call opportunities, but it’s up to you to trade these opportunities.
Lattco makes it easy to place covered call trades. Source: Lattco
Several key issues may arise:
- What strike price and expiration should you use?
- How much should you allocate to a particular stock?
- What do you do if the stock price rises or falls?
Snider Advisors—the creator of optionDash—provides a free three-part e-course to teach you the basics if you’re just getting started. In particular, we will teach you our rules-based strategy to create income from your portfolio. We also provide a platform called Lattco to help place these trades and save both time and money.
If you prefer a hands-off approach, we also offer full-service asset management options. We’ll help you develop a customized financial plan to boost income while dealing with tax-related issues, such as required minimum distributions and Roth conversions.
The Bottom Line
optionDash makes it easy to screen for options with tools that you won’t find elsewhere. Once you’ve built a shortlist of opportunities, you can trade them through a conventional brokerage account or use Lattco for a covered call-specific platform. If you are just getting started, take our free three-part e-course to learn the ropes.
