Best Stocks to Write Covered Calls: A Comprehensive Breakdown

Written By Ben Broadwater

Posted November 13, 2023

Interested in the best stocks to write covered calls? Navigating the world of options trading can be a rewarding endeavor, but it's crucial to equip yourself with the right knowledge and strategies to maximize your returns and minimize risks.

Covered calls, in particular, have emerged as a popular choice among investors seeking income generation and moderate growth potential. This article delves into the intricacies of covered calls, uncovering the best stocks for this strategy and exploring a proven approach to implement it effectively.

best stocks for covered calls

Best Stocks to Write Covered Calls – Unveiling the Gems

Selecting the right stocks is the cornerstone of a successful covered call strategy. The best stocks for covered calls are those that have high implied volatility, stable prices, and strong underlying fundamentals.



Here's a closer look at some of the top contenders:

1. Advanced Micro Devices (AMD)

AMD chart

Advanced Micro Devices (AMD) is a leading semiconductor company that has been a major beneficiary of the ongoing growth in the chip industry. The company's Ryzen processors have been particularly successful, taking market share away from Intel. AMD also has a strong presence in the graphics card market with its Radeon GPUs.

AMD is a good choice for covered calls because it has a high implied volatility, which means that options premiums are relatively high. This is due to the fact that AMD's stock price is relatively volatile, which makes options traders more willing to pay a premium for the right to buy or sell the stock at a certain price.

AMD also has a relatively stable stock price, which means that there is less risk of the stock price declining below the strike price of the call option. This is because AMD is a mature company with a strong product portfolio and a loyal customer base.

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2. Ford Motor Company (F)

F chart

Ford Motor Company is an established automaker with a long history of success. The company is in the midst of a major transformation to an electric vehicle (EV) company. Ford is investing heavily in new EV models, such as the Mustang Mach-E and F-150 Lightning.

Ford is one of the best stocks to write covered calls because it has a relatively stable stock price. This is due to the fact that Ford is a mature company with a strong brand and a loyal customer base. Ford also pays a dividend, which provides additional income for investors.

3. ConocoPhillips (COP)

COP chart

ConocoPhillips is a major energy company that is benefiting from the rising prices of oil and natural gas. The company has a strong presence in the Permian Basin, which is one of the most productive oil fields in the world. ConocoPhillips is also investing heavily in renewable energy, such as solar and wind power.

ConocoPhillips is a good choice for covered calls because it has a high implied volatility. This is due to the fact that oil and gas prices are relatively volatile, which makes options traders more willing to pay a premium for the right to buy or sell ConocoPhillips' stock at a certain price.

4. Verizon Communication (VZ)

VZ chart

Verizon Communication is a leading telecommunications company with a strong presence in the wireless and wireline markets. The company is also investing heavily in 5G technology.

Verizon is one of the best stocks to write covered calls because it has a relatively stable stock price. This is due to the fact that Verizon is a mature company with a strong brand and a loyal customer base. Verizon also pays a dividend, which provides additional income for investors.

5. Devon Energy (DVN)

DVN chart

Devon Energy is an energy company with a strong presence in the Permian Basin. The company is benefiting from the rising prices of oil and natural gas. Devon Energy is also investing heavily in renewable energy, such as solar and wind power.

Devon Energy is a good choice for covered calls because it has a high implied volatility. This is due to the fact that oil and gas prices are relatively volatile, which makes options traders more willing to pay a premium for the right to buy or sell Devon Energy's stock at a certain price.

Crafting a Winning Covered Call Strategy

To effectively execute a covered call strategy, consider these essential steps:

1. Select Suitable Stocks: Employ the criteria discussed earlier to identify stocks that align with your risk tolerance and investment goals.

2. Analyze Market Conditions: Assess the overall market sentiment and volatility to determine appropriate strike prices and expiration dates.

3. Choose Strike Prices Wisely: Strike prices play a crucial role in covered calls. Select strike prices that are slightly above the current stock price to maximize premium income while maintaining downside protection.

4. Manage Expiration Dates: Set expiration dates that are far enough in the future to allow for potential stock price appreciation but not too far out to expose yourself to excessive risk.

5. Monitor Positions Regularly: Keep a watchful eye on your covered call positions, adjusting them as market conditions and stock prices evolve.

Are Covered Calls Profitable?

The profitability of covered calls hinges on various factors, including the performance of the underlying stocks, the chosen strike prices, and the prevailing market conditions. While covered calls can generate consistent income, they are not without risks. The potential for stock prices to decline below the strike price, resulting in the obligation to sell shares at a loss, is a key risk to consider.

Best Stocks to Write Covered Calls – Conclusion

Covered calls offer a compelling approach to generating income from stocks while limiting downside risk. By carefully selecting stocks that align with your investment goals and employing a well-defined strategy, you can enhance your chances of success in this options trading technique. Remember, thorough research, risk management, and continuous monitoring are essential for navigating the dynamic world of covered calls.

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