In this article, we’re going to see how to choose an option for generating income. The strategy we’ll use is covered calls, which means we own a stock or will buy it then sell call options on the same stock. We’ll also further refine results by adding our own filter.
A covered call strategy has a neutral to bullish bias. In order for the strategy to succeed best, the stock price needs to stay below the call price. We’d rather go with the neutral part of that strategy since we don’t want our stock price going much below our entry price, if at all. For that, we’ll use a scanner that chooses only quality, safe stocks and is specific to covered calls.
Running The Scan
Click “Predefined” at the top of the Dashboard. Then select the scanner titled, ‘Safe covered calls (Profitable & good companies, growing, high yield, margin of safety)’.
Clicking the scanner title will run the scan. Note that each time you click a scan, it pulls in current market numbers. You should get output similar to the following:
Let’s see how to choose a covered call out of those listed. I’m going to break out each parameter/column that we’ll be looking at along with a summary next to it:
- Stock Score – 10 is best. All have a score of 8 so there is nothing to compare here.
- IV Rank – 100 is for option sellers. Basically, IV Rank is mean reverting. A high IV Rank will eventually come down, depressing premiums with it. That is why a high IV Rank is great for option sellers.
We can see that GE has a high IV Rank of 98.02%. While it would be great to sell a call option with that type of IV Rank, that isn’t the only criteria we’re considering. We still want to do a little further verification. This will include adding a “50 day moving average” filter.
Customizing A Predefined Scan
To add in our list of additional filters, click the “Edit/Duplicate” button in the top right of the results. To keep our scan focused on GE, CMG and MOS, we’ll add a symbol filter. Click the “ADD FILTERS” button.
Type in “symbol” and click “Include symbols”.
This will add the “Include symbols” filter to the left. Click “Any” next to this filter and type in the three stock symbols separated by commas.
We’re going to now add the 50 day moving average. Add another filter and type in “moving”. Click “Moving Average 50 Day”. For that filter, click “Any” and select “Above MA”.
Now click “RUN SCAN” and you should see only MOS.
Let’s summarize where we are. We want to write covered calls on safe stocks. To find related options, we ran the ‘Safe covered calls’ predefined list. We further refined the results by adding an additional filter.
The additional filter only strengthens our conviction that MOS is in fact a top contender for writing covered calls on. Now that we understand how to add filters to a predefined scan, we can add more filters based on our personal technical or fundamental requirements.
Give it a try! Go to your Dashboard, click on the same predefined scan, edit the results and add the symbols results to an “Included symbols” filter and then continue further refining the results with additional filters until the outcome has met all of your criteria.