Top Stocks For Covered Calls: 7 of the Best Companies to Cover Your Cash

Written By Mike Munno

Updated May 9, 2024

Covered calls are a proven options strategy that investors are using more and more. But, some stocks are better for covered calls than others. Today, we're going to discuss the top stocks for covered calls. Before we get into the top stocks for covered calls, we're going to make sure we're on the same page on what covered calls are and how they can be utilized. 

The covered call options strategy involves owning a stock while simultaneously selling a call option on that stock. This strategy provides investors with the potential for income, risk mitigation, and the opportunity to profit in certain market conditions.

Investors start by owning the underlying stock, which "covers" the potential obligation of the call option. Simultaneously, investors sell a call option on the same stock. Each option represents the right (but not the obligation) for the buyer to purchase 100 shares of the underlying stock at a predetermined price (strike price) within a specified time frame (expiration date).

Top Stocks for Covered Calls

Why Use Covered Calls? 

Many investors are intimidated by options. There are plenty of horror stories out there of rookie options traders losing their shirts in a matter of minutes. But that’s why covered calls have provided new options traders a chance to get their feet wet, without risking anything they’re uncomfortable with. 

Covered calls do not eliminate market risk. If the overall market experiences a downturn, the value of the underlying stock may decline, offsetting the premium received. The main risk, however, is limited upside. 

If the stock price rises significantly above the call option's strike price, investors may miss out on substantial capital gains. But if that is your biggest worry, then you might be ready for something a little more advanced than covered calls. 

Before we get into the top stocks to own for covered calls, we need to cover one more thing. 

What to Know Before Buying Top Stocks for Covered Calls

Stock Selection: Choose stocks that you are comfortable holding for the long term. Look for stable, dividend-paying stocks with relatively low volatility.

Strike Price Selection: The strike price of the call option is crucial. It should be a level at which you are willing to sell the stock and should align with your expectations for the stock's future price movement.

Market Conditions: Covered calls work best in neutral to slightly bullish market conditions. Consider the overall market trend and economic indicators before implementing this strategy.

Dividend Impact: If the underlying stock pays dividends, be mindful of ex-dividend dates. If the call option is exercised before the ex-dividend date, you may miss out on the dividend payment.

Monitoring and Adjustments: Regularly monitor the performance of your covered calls. Be prepared to make adjustments if market conditions or your outlook on the stock change.

Covered calls can be a valuable tool for income generation and risk mitigation in a well-constructed investment strategy. However, like any investment strategy, they come with their own set of risks and considerations. 

If you want to give yourself the best chance at success, it’s critical that you understand the trades you’re making. Now without further adieu,  let’s get into the top stocks to own for covered calls…

Top Stocks to Own for Covered Calls

  • Apple (NASDAQ: AAPL)
  • Microsoft Corporation (NASDAQ: MSFT)
  • Johnson & Johnson (NYSE:JNJ)
  • Procter & Gamble Co. (NYSE: PG)
  • AT&TInc.  (NYSE: T)
  • Coca-Cola Company (NYSE: KO)
  • Verizon Communications Inc. (NYSE: VZ) 
  1. Apple Inc. (AAPL): Stability and Innovation

Apple Inc., a cornerstone of technological innovation, proves to be an excellent choice for covered calls. The company's stock not only boasts stability but also offers a track record of consistent growth. With a robust product ecosystem and a loyal customer base, Apple provides investors with the assurance of steady income. The potential for capital appreciation, driven by continuous innovation and strong financials, positions Apple as a top contender for those looking to leverage covered calls in their investment strategy.

  1. Microsoft Corporation (MSFT): Navigating the Tech Wave

In the dynamic landscape of technology, Microsoft Corporation stands out as a prime candidate for covered calls. The company's solid financials, diverse product offerings, and strong market presence make it an attractive choice. As technology continues to play a pivotal role in the global economy, Microsoft's stock offers a unique combination of stability and growth potential. Investors exploring covered calls in tech stocks should consider Microsoft for its ability to navigate the ever-evolving industry landscape.

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  1. Johnson & Johnson (JNJ): Healthcare Haven

For investors seeking stability in the healthcare sector, Johnson & Johnson emerges as a beacon. This pharmaceutical and consumer goods giant provides a solid foundation for covered calls. With a history of dividend growth and a diverse range of healthcare products, Johnson & Johnson offers investors a defensive play with the potential for consistent income. As the demand for healthcare remains resilient, JNJ's stock proves to be a compelling choice for covered call strategies.

  1. Procter & Gamble Co. (PG): Consumer Goods for Consistent Returns

Procter & Gamble Co. shines in the consumer goods sector, making it an ideal candidate for covered calls. The company's extensive portfolio of essential household items contributes to a reliable income stream. As consumers continue to demand everyday products, Procter & Gamble's stock provides investors with a defensive play and steady growth. Those looking for consistency in their covered call strategy should consider the enduring appeal of PG.

  1. AT&T Inc. (T): Telecommunications Yield

AT&T Inc., a telecommunications giant, takes the stage as a high-yield choice for covered calls. The company's expansive market reach and diversified business model contribute to its stability. With a focus on providing communication services, AT&T offers investors a combination of income and potential for capital appreciation. Those seeking a reliable yield from the telecommunications sector should consider incorporating AT&T into their covered call portfolio.

  1. Coca-Cola Company (KO): Time-Tested Resilience

Coca-Cola Company, with its timeless brand and consistent dividend payments, provides a classic choice for covered calls. As a global leader in the beverage industry, Coca-Cola's products remain in demand across various market conditions. This resilience, coupled with a history of reliable dividend payments, positions KO as a staple for conservative investors looking for stability in their covered call strategies.

  1. Verizon Communications Inc. (VZ): Connecting with Stability

Verizon Communications Inc. solidifies its position as a telecommunications giant, offering investors stability and a competitive dividend yield. The company's extensive network and strong market presence make it a reliable option for covered call strategies. As communication services continue to be a fundamental part of daily life, Verizon's stock presents an opportunity for investors seeking a stable income stream with the potential for growth.

Final Thoughts on the Top Stocks to Own for Covered Calls

So there you have it. These are seven of the top stocks to own for covered calls. While there are (debatably) other top stocks for covered calls out there, these will point you in the right direction.

In the realm of covered calls, a diversified approach is key. Investors should carefully select stocks that offer stability, growth potential, and reliable dividend payments. The ten stocks highlighted here represent a balance of these factors, making them prime candidates for investors looking to harness the power of covered calls in their portfolio strategy.

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