Covered calls represent a great opportunity for investors to earn a premium by selling contracts on stocks they already own, enhancing profit potential tremendously. But to fully capitalize on this stock investment strategy it’s imperative that you’re choosing the best covered call stocks.
So, what are the best stocks for covered calls in 2024? The goal is to uncover stocks with ample liquidity, some degree of predictability, and moderate volatility. This makes high dividend stocks a great choice, with these being some of the top options now:
- Ford Motor Company (F)
- Lowe’s Companies, Inc. (LOW)
- PepsiCo, Inc. (PEP)
- Walmart Inc. (WMT)
- ConocoPhillips (COP)
- Johnson & Johnson (JNJ)
- Verizon Communication (VZ)
- Oracle Corporation (ORCL)
- Apple Inc. (AAPL)
- Microsoft Corporation (MSFT)
However, we’re not just here to unveil the best stocks for selling covered calls. We want you to be able to find these opportunities yourself, which is why we’ll walk you through how to find stocks for options trading below.
But if you just want to streamline your stock picking strategy, look no further than VectorVest: the best stock picking app ever. It has outperformed the S&P 500 index by 10x over the past 20 years and counting, all while saving investors time and stress.
When paired with the OptionsPro integration, the possibilities become even more profound. Discover what our stock software can do for you today!
Overview of Covered Calls
Let’s start with the basics – what are stock options? These are contracts granting the holder the right (but not the obligation) to either buy or sell an asset at a predetermined price (known as the options strike price) before a predetermined date (known as the stock options expiration date).
As far as investing goes, options can be quite complex in comparing stocks vs options. That’s why we encourage beginners to learn about call vs put options, the benefits of trading stock options, taxes on options trading, and more. That being said, let’s narrow our focus to covered calls specifically.
This unique approach involves holding a long position in a stock while simultaneously selling call options on that same stock. The goal is to generate additional income from the premiums received for selling the call options, which can provide a steady stream of income and potentially enhance overall returns.
A covered call strategy is considered relatively conservative because it leverages an existing stock position, reducing the risk compared to other options strategies that may involve naked positions or require significant margin.
Meanwhile, the income generated from selling call options can help offset potential losses in the stock, making this strategy attractive in stable or slightly bullish markets. It’s a great approach to risk management in options trading. So, what happens when options expire under this strategy?
If the stock price remains below the strike price of the sold call options, the options expire worthless, allowing you to keep the premium and the stock. This is the best-case scenario.
But if the stock price rises above the strike price, the options may be exercised, and you’re obligated to sell the stock at the strike price. You still benefit from the premium and any gains up to the strike price but you miss out on any additional upside beyond that point.
All that being said, covered calls are best suited for investors who seek to generate income from their stock holdings and are willing to cap their potential upside in exchange for the premium income.
However, learning how to sell options profitability is all contingent on choosing the best stocks for covered calls – so let’s get into some of the key criteria you should consider.
What to Look for in the Best Covered Call Stocks
While we are going to point you in the right direction with 10 of the best covered call stocks in 2024 momentarily, you have to be able to uncover these types of opportunities on your own to enjoy repeated success for years to come.
So, here are the most important things to assess in choosing stocks to sell covered calls on.
Stable and Predictable Stock Performance
While you don’t know with complete certainty what will happen to a stock’s price performance over a 30, 60, or 90-day span, the ideal stocks for covered calls are those with relatively stable or moderately bullish price movements.
Volatile stocks have large price swings that make it challenging to predict outcomes. Stable stocks allow you to collect premiums without the risk of significant price drops or missing out on substantial gains.
High Liquidity
Ample liquidity ensures tighter bid-ask spreads, which reduces trading costs and allows you to enter and exit positions more easily. Liquid options also provide more flexibility in selecting strike prices and expiration dates that align with your strategy.
Attractive Option Premiums
Stocks with higher implied volatility tend to have higher premiums, but it’s essential to balance this with the need for stability. We talk about this in our more detailed guide on implied volatility in options trading.
Ensure the stock’s volatility is not excessively high, which could increase risk. Again, the goal is to stack the deck in your favor by choosing stocks with lower volatility.
Strong Dividend Yield
Stocks that pay dividends provide an additional income stream, enhancing the overall return of your covered call strategy. Ensure the dividend yield is attractive and the company has a history of consistent dividend payments.
We have more tips on how to invest in dividend stocks along with resources on the safest dividend stocks, the best blue chip dividend stocks, and more.
Sound Financial Health
Strong fundamentals such as consistent revenue growth, profitability, manageable debt levels, and positive cash flow are indicators of a company’s stability. Financially healthy companies are less likely to experience drastic price drops, making them safer for covered call strategies.
So, learn how to do fundamental analysis of stocks, or better yet, how to combine fundamental and technical analysis, in our blog. We also have a stock fundamental analysis tool that can streamline this for you. Otherwise, you can find this data on free stock analysis websites.
Sector Strength
It’s also worth zooming out and not just looking at the best stocks for covered calls, but sectors that support a repeatable strategy. Stocks in sectors with positive growth prospects and stable performance are more likely to provide the consistency needed to sell covered calls.
What are the Best Stocks for Covered Calls in 2024?
So, what are the best stocks for covered calls in 2024? VectorVest tracks more than 18,000 stocks on a daily basis. We’ve taken these insights and uncovered the 10 best covered call stocks to point you in the right direction.
However, we encourage you to perform your own research on these stocks before actually making your next move. The stock market is constantly evolving and you need to stay up to date, which is why having access to the best stock research sites like VectorVest is so powerful!
Ford Motor Company (F)
Ford Motor Company is undoubtedly one of the best stocks for selling covered calls due to its stable price performance and high liquidity. So far this year the stock has stayed within a range of $11 to $14 a share.
Ford’s dividend yield stands at around 4%, providing an attractive income stream. The Ford options market is highly liquid, offering ample opportunities for covered call strategies. This makes it a reliable stock for generating option premiums.
Lowe’s Companies, Inc. (LOW)
Lowe’s is another solid pick for covered calls given its financial health and market position in the home improvement sector. The company has consistently reported strong earnings and revenue growth, supported by a solid housing market and consumer spending on home improvement.
Lowe’s offers a dividend yield of approximately 2%, and its options are highly liquid. Its steady performance and strong fundamentals present an attractive stock for covered calls with a balanced risk-reward profile.
PepsiCo, Inc. (PEP)
PepsiCo, Inc. has earned a spot on our list thanks to its stable earnings and strong dividend history. Its dividend yield of around 2.5% and long history of dividend increases actually make it one of the best dividend stocks, and this in turn makes it great for writing covered calls.
PepsiCo’s diverse product portfolio includes popular brands like Pepsi, Lay’s, and Quaker, ensuring steady revenue streams.
The stock’s low volatility and high liquidity allow you to earn attractive premiums while holding a reliable, dividend-paying stock that generates supplemental income in the here and now, too. It’s the best of both worlds!
Walmart Inc. (WMT)
Walmart Inc. has climbed nearly 30% thus far through 2024, but it’s still a great opportunity for those seeking to write covered calls. It boasts an attractive dividend yield of about 1.6% and its high liquidity facilitates smooth options trading.
Walmart’s stock typically exhibits low to moderate volatility, too, making it less risky for covered call strategies. The company’s strong market position and consistent financial performance provide a dependable foundation for its stock.
ConocoPhillips (COP)
ConocoPhillips has one of the higher dividend yields on this list at around 4.8%. It has high liquidity to back it up, too. The stock’s price stability is supported by strong cash flow from diversified energy assets, making it ideal for covered call strategies.
ConocoPhillips’ stock usually shows moderate volatility, which allows you to capture favorable option premiums without excessive risk. While you should assess the opportunity yourself, now could be a good time to buy COP at a discount, too, as it has fallen nearly 7% in the past 3 months.
Johnson & Johnson (JNJ)
Johnson & Johnson is a medical manufacturing giant with low volatility and an attractive dividend yield of approximately 2.8%. The stock’s high liquidity ensures easy execution of options trades.
Johnson & Johnson’s diverse business segments, including pharmaceuticals, medical devices, and consumer health, provide a stable revenue base that remains resilient in the face of market downturns.
The stock itself has slipped so far through 2024, down 6% in that span. But given the role this company plays in keeping our world healthy, it could be a great discount buy right now.
Verizon Communication (VZ)
As one of the telecommunications leaders, Verizon Communication is an excellent choice for anyone seeking the best stocks for covered calls strategies.
So far this year it has stayed within a $4 range, which means you can feel fairly confident writing covered calls knowing you’re stacking the deck in your favor.
It also has one of the higher dividend yields on this list at 6.6% paired with low-to-moderate volatility, which presents a good middle ground from a risk-to-reward perspective. Trading activity is incredibly high for this stock, too, which makes for efficient options transactions.
Oracle Corporation (ORCL)
Oracle Corporation continues to leverage AI to improve its legacy products, driving earnings growth from its cloud services and software products and returning those profits to shareholders.
In fact, it has been paying out dividends since 2009, with the current dividend yield falling at right around 1.14% and an annual dividend of $1.60. So while the dividend payouts won’t make you rich, you’re still getting consistent returns from holding this stock.
This is perhaps the most volatile stock we have on this list, which means you’ll need to exercise caution in writing covered calls for it. We wanted to include it because it shows impressive stock price appreciation, up 11% in the past month and 33% so far this year.
Apple Inc. (AAPL)
Apple Inc. may not jump out as one of the best covered call stocks given its dividend yield of about 0.6%. But despite the lower yield, Apple’s stock is highly attractive due to its impressive market cap of $3.21 trillion and stable price movements. Its moderate volatility is ideal for generating options premiums without substantial risk.
Apple’s strong earnings growth, driven by its innovative product line and services, provides a solid foundation for its stock. This tech stock is not one we’d ever bet against, and the performance speaks for itself. It has climbed 12% in the past year.
Microsoft Corporation (MSFT)
Finally, we have Microsoft – another tech darling that poses a compelling choice for anyone seeking the best stocks for covered calls. This behemoth is highly liquid for efficient options trading and actually holds a larger market cap than Apple at $3.35 trillion.
This is driven by its continuous innovations in the technology sector, from its cloud computing software products to AI investments which are finally starting to come to fruition.
It has a low dividend yield of 1% as well but is seen as a very stable and reliable stock for options trading strategies. It has only moved 6% in the past 3 months so you can feel fairly confident writing covered calls with this stock.
Effortlessly Uncover the Best Stocks for Selling Covered Calls on Autopilot With VectorVest!
Now that you’re up to speed on the best covered call stocks in 2024, the only thing left to do now is hit the ground running with this strategy. Or, better yet, set yourself up for seamless success with the best app for stock analysis, VectorVest.
It’s a proprietary stock rating system that tells you what to buy, when to buy it, and when to sell it – eliminating stress, uncertainty, emotion, and human error from your decision-making. It saves you time too by boiling down complex stock indicators into more simple ratings.
If you’re ever in doubt about the best stocks for selling covered calls, simply pull up the stock advisory and navigate to our pre-curated screeners. We have a list of the best option stocks at any given time, so you never have to look far for your next opportunity.
The real benefits come from integrating VectorVest with OptionsPro, though. This is a suite of proprietary tools that help you execute a successful options trading strategy on autopilot. You’re able to scan a list of stocks and pinpoint those that present the greatest probability of profits.
Beyond uncovering opportunities, it helps you perfect your strategy by finding strike prices that offer the best value from a risk-reward standpoint. You can also see what your odds are when configuring a strike and expiration to skew the probability in your favor.
We’re confident you’ll find it easier to make money trading options with VectorVest and OptionsPro, but why not experience the best beginner investment app firsthand and see for yourself? You can even get a free stock analysis today to see what’s possible.
Final Thoughts on the Best Stocks for Covered Calls
That concludes our guide on the best covered call stocks. While this strategy can help you squeeze out higher returns, it’s all contingent on choosing the best stocks for selling covered calls. Remember to look for stability, liquidity, and moderate volatility.
Our blog has additional resources on stock options for beginners, like open interest mean in options, warrants vs options, how to short a stock with options, when to sell options, trading futures vs options, how do options affect stock price, NQ stock options, when to exercise options, how to build a stock portfolio, blue chip investing, and more.
But rather than learn options trading the hard way, why not set yourself up for smooth sailing with VectorVest, the best iPhone stock app and the best Android stock app at your disposal?
Whether you’re looking for the best stocks for covered calls, aggressive growth stocks, falling stocks to buy, current undervalued stocks, or even the best stocks for beginners, the system can save you time and stress while helping you dominate the options field.
So, leverage our precise analytics and tools to help you make confident, data-driven decisions in your covered call strategies. Enhance your investment strategy with VectorVest today!
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