A covered call is a type of option strategy that involves owning shares of a stock and selling a call option on that stock. The seller of the call option is paid a premium by the buyer of the option for the right to purchase the underlying stock at a set price and time in the future.
When the option matures, there are two possible scenarios that may occur. If the price of the stock is less than the strike price, then the option will expire, and no further action will be taken. However, if the price of the stock is higher than the strike price, the option is executed, and the seller of the call option automatically sells their shares at the strike price.
The seller of the call option receives the premium upfront and accepts the risk associated with the covered call. If the price of the stock rises above the strike price, the seller will be obligated to sell their shares at the lower price, missing out on potential profits.
The best time to buy a covered call option is when the stock price has already risen to the target value or when a big jump in price is expected due to a company news. By using stock signals and following stock advisory services, investors can save hours of technical analysis to understand the market and make an informed decision.
Best Stocks For Covered Call Writing
Investors looking for a strategy to generate extra income from their stock investments may consider using a covered call approach. The list of best stocks for covered calls in 2023 can be a starting point for investors to identify stocks that have the potential to generate good premiums and profits through this strategy. Although using this approach during a bull market may not yield the best returns, investors can still make profits by following this strategy.
- ConocoPhillips (NYSE: COP)
- Oracle (NYSE: ORCL)
- Verizon Communication (NYSE: VZ)
- Pfizer Inc. (NYSE: PFZR)
- Devon Energy (NYSE: DVN)
- Advanced Micro Devices (NASDAQ: AMD)
- Nvidia (NASDAQ: NVDA)
- Ford Motor Company (NYSE: F)
- Walmart
- Acadia Healthcare Corporation (ACHC)
ConocoPhillips (NYSE: COP)
ConocoPhillips is a global company that explores, produces, transports, and markets crude oil, natural gas, and other products.
The company reported strong operational performance in Q4 of 2021, generating $8 billion in adjusted earnings and $2.27 earnings per share.
ConocoPhillips paid $2.4 billion in cash dividends to shareholders and had a 14% Return on Capital Employed with free cash flow of $10.4 billion.
The company plans to invest $7.2 billion in capital expenditures in 2022 and recently completed the purchase of Shell’s interest in the Permian for $9.5 billion in cash.
Analysts offer a 12-month price forecast for ConocoPhillips with a maximum of $128, a minimum of $77, and a median target price of $106.
Oracle (NYSE: ORCL)
Oracle is a technology corporation that sells cloud-engineering services, systems, and database management systems.
In its Q2 financial report, Oracle announced a 6% increase in revenue, driven by strong growth in its infrastructure and applications cloud businesses.
Cloud services and license support revenues were up 6%, and cloud license and on-premise license revenues were up 13%.
Non-GAAP earnings per share increased by 14%, reaching $1.21.
Analysts offer a 12-month price forecast for Oracle with a maximum of $126, a minimum of $83, and a median target price of $105.
Verizon Communication (NYSE: VZ)
Verizon is a leading provider of technology and communication services, operating through two segments: Consumer and Business.
The company reported a decline in earnings for Q4 2021 but still delivered strong financial performance.
Verizon expects positive and progressive growth in 2022, with service and other revenues expected to increase by 1%-1.5% and total wireless revenue growth expected to be between 9%-10%.
In Q4 2021, Verizon reported 11.4 million wireless postpaid device activations, 1.1 million wireless retail postpaid net additions, 6.7 million wireless postpaid upgrades, and 47,000 wireless retail account net ads.
As per CNN Money, analysts offer a 12-month price forecast for Verizon with a maximum of $71, a minimum of $52, and a median target price of $58.5.
Pfizer Inc. (NYSE: PFZR)
Pfizer is a global biopharmaceutical company engaged in the discovery, development, and distribution of biopharmaceutical products, including medicines and vaccines.
The company reported strong financial performance in its Q4 2021 report, with total revenue of $23.8 billion, a 106% YoY increase, and adjusted earnings per share of $1.08.
Pfizer is ranked #2 among large biopharma companies and #4 on Fortune’s World’s most admired companies list.
The company forecasts record-high revenue for 2022, with a range of $98 billion to $102 billion, and targeted earnings per share of $6.35 and $6.55.
Analysts offer a 12-month price forecast for Pfizer’s stock, with a maximum of $76, a minimum of $49, and a median target price of $57.
Devon Energy (NYSE: DVN)
evon Energy is a leading oil and gas producer in the U.S. with a multi-basin portfolio.
The company reported total earnings of $4.3 billion and net earnings of $1.4 billion for Q4 2021, with earnings per share of $2.23.
Devon Energy reduced debt by $1.2 billion, delivering strong liquidity of $2.3 billion in cash and improved debt position.
The company has a history of 29 consecutive years of dividend payment, and announced a $1 dividend per share for this quarter.
Devon Energy is well-positioned for strong growth in 2022, with total production expected between 570-600 MBOED, and a market capitalization of $39.55 billion.
Advanced Micro Devices (NASDAQ: AMD)
Advanced Micro Devices, Inc. is a global semiconductor company.
The company has two main segments: Computing and Graphics, and Enterprise, Embedded, and Semi-Custom.
The company reported a record revenue of $16.4 billion, a gross margin of 48%, and a net income of $3.2 billion for the year 2021.
Operating cash flow was reported at $3.5 billion, a 229% year-on-year increase, and a record free cash flow of $3.2 billion, a 314% increase.
AMD expects a 31% growth in revenue and a gross margin of 51% for the fiscal year 2022. The company has a market capitalization of $200 billion and its share is trading at a price of $123. Analysts offer a 12-month price forecast of a maximum of $246, a minimum of $100, and a median target price of $156.
Nvidia (NASDAQ: NVDA)
NVIDIA is a graphics card manufacturer and GPU designer with products for supercomputing and AI acceleration.
The company reported a revenue of $16.7 billion in its annual report for 2022, a 53% increase from last year.
NVIDIA’s computing platforms have led to the democratization of supercomputing for researchers, and AI has emerged as the most important force in technology.
For the next quarter, the company expects revenue to be approximately $5.3 billion, and gross margins to range between 63.8% to 66%.
NVIDIA has a market capitalization of over $607 billion, and analysts offer a 12-month price forecast with a maximum of $400, a minimum of $210, and a median target price of $350.
Ford Motor Company (NYSE: F)
Ford Motor Company is a leading automobile manufacturer that designs, manufactures, and services a range of vehicles.
The company reported fourth-quarter revenue of $37.7 billion, an increase of 5% due to higher net pricing and mix improvement.
The company has plans for 240GWh global battery capacity by the end of the decade and aims to be the number 1 BEV in the U.S. by doubling annual BEV capacity to 600K by 2023.
Ford Motors has a market capitalization of over $70 billion and its shares are currently trading at a price of $17.56.
Analysts offer a 12-month price forecast for Ford’s shares with a maximum of $30, a minimum of $13, and a median target price of $22.5.
Walmart
Walmart is a retail company that operates through three segments: Walmart U.S., Walmart International, and Sam’s Club.
The company operates thousands of stores and eCommerce websites globally.
In the recent quarterly report, Walmart reported a 2.4% increase in total revenue and a 23% decline in operating income from the same period last year.
Walmart’s market capitalization is over $333.6 billion, and its stock price is currently trading at $121.6, with high volatility in the past two years.
As per CNN analysts, the 12-month price forecast for Walmart has a maximum price target of $180, a minimum of $131, and a median target of $157.50.
Acadia Healthcare Corporation (ACHC)
Acadia is a leading provider of behavioral healthcare services across the United States, operating inpatient psychiatric hospitals, specialty treatment facilities, residential treatment centers, and outpatient clinics.
As of March 31, 2022, Acadia operated a network of 238 behavioral healthcare facilities with approximately 10,600 beds in 40 states and Puerto Rico.
In the first quarter of 2022, Acadia reported a revenue of $616.7 million, an increase of 11.9% as compared to the first quarter of 2021. Net income attributable to Acadia totaled $60.8 million.
Acadia Healthcare Corporation has a market capitalization of over $6.2 billion, with shares trading at a price of $68.23. The stock has appreciated by 12.4% in 2022.
According to CNN Analysts, 12-month price forecasts for ACHA have a maximum price target of $95 and a minimum price target of $69, and a median target of $84.