Holiday-Inspired Covered Call Ideas

11/22/2011 8:00 am EST

Focus: OPTIONS

High-yielding seasonal plays like these could be fine candidates for covered calls, allowing traders to collect smart premiums at a time when having some extra cash on hand is always a good idea.

Want some extra cash for the holidays? Here’s a covered call screen that identifies some candidates for the December cycle (about 25 days to expiration from today). You could buy these stocks, write covered calls against them, and then use the cash to pay for your parties and gift giving. Party on!

Holiday Screen for Covered Calls

Let’s create a few holiday-themed sectors and put in some candidate companies within each that people should be attracted to while shopping and partying. We looked at food, drink, tobacco, toys and bling.

From each sector we enter the symbols into Born to Sell’s watch list to create a screen based on high-yielding, in-the-money covered calls, resulting in these candidates.

Be sure to check current option pricing before you execute any trade. These prices could be stale by the time you are ready to trade.

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Click to Enlarge

This is by no means a recommendation to automatically go put on those trades. Additional diligence on those companies is required. But it is an example of how you can do a themed covered call screen.

There is a bit of work to think about what categories you want to invest in for the next cycle, and then come up with a few symbols that fit into each one. Then it’s a matter of screening for the ones that pay the best to create some covered call candidates.

And, finally, begin due diligence on the ones that filter to the top of the list. For example, from the above list, there is one that has earnings before the December expiration (Tiffany and Co. (TIF)), which may be reason enough to remove it from the list (or at least cause you to write deeper in the money than you normally would).

By Mike Scanlin of BornToSell.com

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