In the past, if you wanted to search for high yield covered calls you had to create a spreadsheet and update it manually. It is a tedious, slow way to do research and you’re never quite sure if you have really looked everywhere for the best covered calls. Plus, the spreadsheet doesn’t update prices during market hours, include ex-dividend dates, or earnings release dates.
Modern software is much more effective than spreadsheets. Purpose-written for one job, it quickly scans the universe of all possible combinations of stock, strike price, and expiration date to find the highest yielding covered calls fast. And it’s a snap to change the search parameters to re-run the search a slightly different way. In a matter of minutes you can now do what used to take hours. And the results will be more complete and accurate.
Covered call calculators and screeners have come a long way in the last 10 years. No longer are investors stuck with manual spreadsheets that don’t update prices during market hours of have integrated data streams for dividends and earnings. Today’s covered call calculator is easy to use, and easy to see the plus and minuses of rolling an existing position to a different strike or expiration, or both.
When considering which calculator to use, an key factor is whether or not the calculator uses the bid/ask prices or the last trade price. Using the bid/ask is much more realistic, and leads to results that you can achieve in the real world. And the calculator should know that in some cases it should use the ask (if doing a buy-to-close transaction on a short option, for example) and in some cases it should use the bid (if doing an sell-to-open transaction, for example).
Some covered calls are higher yield than others. Many factors are involved. But one thing is for sure: If you don’t know the reason why an option is priced so high then you should not get involved. Maybe there’s an some news item that is expected before option expiration, or maybe the market is worried (VIX is high) and all options are priced higher than normal. Until you understand the reasons for an option to be priced high, you should not invest. Having said that, using a good covered call screener to find high yield opportunities is a great way to build your list of research candidates.
Using a covered call screener to find high yield covered calls, along with a covered call calculator to modify and maintain positions is a good way to stack the odds in your favor. You’ll want to begin your research with a list of candidate opportunities that will pay a decent amount if they work out. After you are satisfied that you know why the options are expensive and are willing to take the risk, then using a covered call calculator to optimize the time premium via rolling (if necessary) will help improve your yields. Not all high yield opportunities should be invested in, and not all positions should be rolled. But having the right tools will help you make the right decisions.
This piece on covered call trading is brought to you by Born To Sell. If the strike price of an option is lower than the stock price then the call option is said to have intrinsic value.