Unlocking Income Potential with Stocks and Covered Calls?

In our last newsletter, we introduced the basic concept of covered calls. This time, we want to explore the types of stocks that are best suited for this strategy.

Characteristics of stocks well suited for covered calls

• Options Market: These are stocks with an active options market, meaning there are available call options that you can write against your shares.

• High Liquidity: Highly liquid stocks are easier to trade, reducing the risk of price fluctuations between the buy and sell orders.

• Low Volatility: Lower volatility stocks generally lead to more predictable price movements, making them a suitable choice for covered calls.

Remember, you can use covered calls with a wide range of stocks, but these criteria make the strategy more effective.

Covered calls and IRA accounts

Covered calls can be a great strategy for individual retirement accounts (IRAs), especially for those looking to generate additional income without incurring the tax consequences associated with more aggressive trading. Traditional and Roth IRAs are well-suited for covered call trading, offering tax advantages and risk management for long-term investors.

Examples of Stocks Suitable for Covered Calls

Here are a few examples of stocks that could be potential candidates for covered call strategies:

• Verizon Communications Inc. (VZ)

• Philip Morris International Inc. (PM)

• Constellation Brands, Inc. (STZ)

• Visa Inc. (V)

• Intel Corporation (INTC)

• Pfizer Inc. (PFE)

• AbbVie Inc. (ABBV)

• The Boeing Company (BA)

These stocks typically have an active options market, exhibit lower volatility, and can provide steady income through covered calls.