Buying Stocks to Sell Calls On

Buying a few different stocks to sell covered calls on can be a good thing or a bad thing.  All basic principles of buying stocks still apply, so choose your positions carefully.

So what stocks are good candidates for covered calls?

1.       Good long Term Plays

If you are going to sell covered calls it is important that you do it on stocks that you would not mind holding for a longer term time frame, because you might have to.  These stocks should have good fundamentals and be companies that will last.

2.       Cheap Stocks

Cheaper stocks can have a higher possible return when it comes to covered calls.  If you sell a $2 call on a $50 stock it is only 4%.  If you sell a $2 call on a $10 stock it is a 20% return.  Just remember this isn’t the most important thing to look at.  High quality stocks are better.

3.       Stocks trending up or sideways

The last thing I would want to do is to buy a stock that is falling with the intension to sell calls on it. If a stock is going down it will most likely keep going down, why would you buy something like that. There is no use selling a $1 call on a stock if it goes down $5. 

Any stock that I buy with the intension of doing a covered call I like to see it either starting to trend higher or at least trending sideways.

4.       It Should have options

This goes without saying, but if you are going to sell a call on a stock it needs to be optionable. Not all stocks have options.  If a stock does not have a lot of volume, it might not have options on it.  There are a few other reasons a stock might not have options so it is worth it to look into that.

For more on Covered Calls Visit http://www.stocks-simplified.com/covered_calls.html