Identifying a suitable stock for a covered call strategy requires discipline, structured research, and realistic expectations. While brokerage firms provide screening tools to simplify the search process, no tool can guarantee outcomes. Like many areas of investing, success depends on preparation and informed decision-making.
Most brokerage platforms offer stock and options screeners to help investors narrow potential opportunities. Charles Schwab, for example, previously offered a dedicated options screener. After acquiring TD Ameritrade, Schwab integrated TD Ameritrade’s advanced Thinkorswim trading platform into its services. Thinkorswim is known for its robust analytical capabilities, including tools tailored to options strategies such as covered calls. Although Thinkorswim provides extensive functionality, a well-structured stock screener can still serve as an effective starting point.
Below is a systematic approach to screening for potential covered call candidates using Schwab’s stock screener.
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Step 1: Access the Stock Screener
After logging into your brokerage account:
- Navigate to Research.
- Select Stocks (ignore the “Options” tab for this particular screening process).
- Click on Stock Screener.
- Choose Create My Own to build a customized screen.
You will see a blank template prompting you to add screening criteria. Criteria appear in a sidebar and can be customized based on your investment preferences.
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Step 2: Select Basic from the left sidebar
Once in Basic, select Price (On the right side of Price my universe of stocks is 12,065 matches.
Since my Schwab account only has approximately $7,500 to invest, I selected only two affordable criteria:
- $10–$20 and
- $20–$40
My universe of stocks is reduced to 1,347 matches.
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Step 3: Stay within Basic and select Optionable Stocks.
- Choose Yes
- This eliminates companies without listed options, focusing your screen only on viable covered call candidates.
My universe of stocks is reduced to 1,233 matches.
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Step 4: Select Dividends from the left sidebar
Under Dividends, select:
- Upcoming Dividends
- Choose predefined values and enter 60 for the next 60 days (Note: This is a subjective decision. It could be 30, 60, or some other number of days. The goal is to capture additional income).
Continue in Dividends and also select:
- Annual Dividend Yield
- Select all percentage yields except None, since every dividend-yielding stock is a potential buy
My universe of stocks is reduced to 236 matches.
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Step 5: Analyst Ratings
- Skip this section for now.
- This section will be revisited when the rest of the screen is set up.
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Step 6: Skip over the following in the sidebar
- Company performance
- Price performance
(Next week…continuing with “Finding a Stock for a Covered Call, Part 2”)
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