Step 7: Select Valuation
Select Price-to-Earnings (TTM) (Trailing Twelve Months). TTM reflects earnings over the previous 12 months, offering a more current perspective than calendar-year data.
- Select both 10–20 and 20–30
- To expand your universe of stocks, experiment with 30-40 or even <10
- The goal is to have a lower P/E ratio.
My universe of stocks is reduced to 67 matches.
__________________________
Step 8: Skip over the following in the sidebar
- Financial strength
- Technicals
__________________________
Step 9: Analyst Ratings
- Schwab Equity Rating: Select A, B, or C.
- Argus: Buy
- Morningstar: 4-Star **** and 5-Star *****
Be cautious: selecting highly restrictive ratings (e.g., only “Buy” or 4–5 stars) can dramatically shrink your results. Broader filters often provide a more workable universe.
Depending on the analyst ratings I select, my universe of stocks is reduced to a single-digit number of matches.
__________________________
Step 10: Save
After building your screen:
- Save it with a clear name and date, i.e., “Covered Calls 2026-3-4”
- You may overwrite and update it as needed. If you permanently change the criteria, update the date to avoid future confusion. You always want to use your latest version.
- Use the latest screen as a starting template for future research.
If the resulting list remains too large, increase your filters, particularly analyst ratings or valuation. If the resulting list remains too small, reduce your filters.
Do not be afraid to experiment by changing filters, criteria, or parameters in the sidebar.
Final Step: Evaluate Covered Call Opportunities
Once you have identified a manageable number of stocks:
- Review each company’s fundamentals (previously discussed)
- Examine option chains (to be discussed).
- Assess potential return (to be discussed).
- Consider dividend timing if applicable (previously discussed).
- Evaluate downside risk and assignment scenarios (to be discussed).
Screeners help identify covered call candidates, but the final decision requires careful evaluation of both the underlying stock and the specific option contract.
A disciplined, repeatable screening process based upon your risk tolerance can significantly improve efficiency when searching for covered call opportunities. While no strategy guarantees success, a structured methodology enhances the probability of identifying favorable buy/write opportunities over time.
__________________________
__________________________
A parting thought: Even though this screen is designed to identify stocks on which to write a covered call, this screen is not set in stone. As you become more comfortable with the screen, experiment with your ideas. This is just a starting point. Additionally, do not be afraid to develop screens designed for other investment opportunities.
The 3 screens that I generated are attached to this post. So much information can be easily filtered and used to make investment decisions.
(Next Week…my February Schwab Statement)
Missed the other investing summaries?
Subscribe and never miss a future blog post!