The No. 1 Stock for Trading Covered Calls
If I could only pick one word to sum up the market recently, I’d choose ‘unpredictable.’
One day stocks are up… Then it feels like we’re heading towards another Great Recession… And then a week can go by with no significant movement to speak of.
It’s frustrating, I know.
And bad for your financial planning.
That’s because when the market is unpredictable, it can be easy to start panicking and make the wrong moves inside your portfolio, like selling at the wrong time or missing the bottom.
Here’s the solution:
Shift your attention to income investing.
When you can generate extra cash on-demand, you don’t have to focus on what the market is doing day-in and day out.
For most, this usually involves picking from a basket of ‘dividend aristocrats,’ buying, then holding forever.
That’s a great strategy in its simplicity. However, it can take a long time to bear fruit.
In fact, an accelerated income plan using high-yield dividend stocks would take several years of reinvestment to work.
Yes, it’s a reliable plan — but what if you don’t have years to wait?
What if you want… or need… extra income right now?
The good news is there’s a way to generate as much as 96x more yield than dividends, all from one repeatable trade.
The trade is known as a covered call, and it uses options.
I know there is a stigma out there about options trading…
But here’s the reality:
This strategy is not complicated… or risky… The idea that trading options has to be expensive, risky, or complex is usually spread by folks that have never tried it… Or don’t want you to try it…
That’s been my experience, at least…
And in my professional opinion, as a 24-year trading veteran…
Anyone can learn how to “sell covered calls.”
You just log in to your brokerage account, select a few items on a drop-down menu, and click submit…
When you make this trade every week or month, you can rapidly increase your income stream while still collecting from other sources of income like dividends.
And you can get started right now and collect this extra cash without waiting months or years for your income to compound.
With a lot of research and experience, I have developed a system that allows me to find and trade the best possible opportunities no matter what is happening in the market. While most people think options trading is a high risk, that is not the case with the covered call trade ideas I use.
Each one of my trade ideas been thoroughly vetted with hours of research on the stock’s business model, financial statements, and the current options chain.
Out of the thousands of stocks that trade on the market…
Just a tiny handful have ever passed my scrutiny.
In this report, I will go over the mechanics of supplementing your retirement income by selling covered calls.
But first, let me introduce my #1 stock for trading covered calls:
My #1 Stock: iShares Silver Trust (SLV)
First off, why invest in silver?
While the metal has plenty of industrial uses, silver mainly trades like a precious metal, similar to gold. Precious metals tend to trade like currencies or stores of value.
So when uncertainty grips the market, investors often turn to precious metals for safety.
And iShares Silver Trust (SLV) is possibly the most popular way to trade/invest in silver. There are likely more SLV shares changing hands on any given day than the physical metal itself!
SLV provides:
1. Exposure to the day-to-day movement of the price of silver bullion
2. Convenient, cost-effective access to physical silver
3. Portfolio diversification to help protect against inflation
That’s because it’s an ETF that tracks the silver market as a whole.
You won’t find that level of stability from an individual silver stock, especially miners, which is why I prefer to sell covered calls on SLV rather than other options.
Especially given the state of the world, it’s hard to imagine the price plunging, especially a prolonged drop in the price.
The Silver Forecast predicts…
“…. global industrial silver demand to a new high of 552 million ounces.”
And Barron’s reports…
“…. silver prices should be much higher….”
This is why I believe many ‘fat cats’ are increasing their stakes in SLV now…
Guardian Capital Advisors LP, for example, boosted its holding by over 680% recently!
And it’s why I believe now is a perfect opportunity to learn how to generate a solid yield and gain exposure to silver’s upside potential.
But the real beauty of this strategy, and why I call it “recession-proof,” is that you collect extra income from SLV no matter which direction the stock moves.
I’ll explain how it’s possible in the “How Covered Calls Work” section…
But, for now, you should know this:
It’s how we went a perfect seven for seven on our SLV trades in 2020 and only booked one loser in 2021. There were chances to collect income no matter what was happening.
Here’s what that could look like for you:
These results are not guaranteed, of course. Nobody can guarantee results from the stock market, not even Warren Buffett! But the potential for reliable income is here.
And though I sometimes swap out SLV for a different stock depending on the month, it is possible to trade this one stock over and over to generate retirement income.
Pro Tip: When the market or SLV stock moves unexpectedly, take a breather before making any quick moves in your portfolio. Go for a walk, hit some balls at the range, do whatever it takes to take your mind off the markets. This will keep you from making hasty decisions in your portfolio. And often, a little break is all that’s needed to stay safe and make the right move that will generate more income for your retirement.
Now that you know what stock to trade covered calls with, here’s how to do it:
How Covered Calls Work
Covered calls are a simple, low-risk options trade that allows you to squeeze income out of stocks, even if they don’t pay a dividend, as with SLV.
The way they work is simple.
First, you buy 100 shares of a given stock. You’re already set if you already own 100 shares or multiples of 100 shares of the stock you want to use.
Second, you sell a call option on that company’s stock.
Now, a call option gives the buyer the right, but not the obligation, to buy 100 shares of the given company at a set price. For this right, the buyer pays the seller a price – the “premium.”
Whatever happens, the seller gets to keep that premium. If things go well, that’s all that happens – the seller gets some cash and gets to keep his shares.
At worst, the seller gets to keep his premium and sells his shares to the buyer for even more money.
The downside is that those shares are sold below the market price – though this rarely happens, especially how I set up my covered calls.
In fact, in about 90% of options trades, the buyer ends up with something worthless – meaning the option seller, you and me in this example, got a premium and didn’t have to do anything else.
Take iShares Silver Trust (SLV). Now, for the covered call strategy, I need to own the stock’s shares and then sell (also known as “writing”) calls on them.
Suppose I have 100 shares at $19 each for a total of $1,900.
To get some income from them, I then sell some call options.
Let’s say the call options expiring next month have a “strike price” of $22…
And these options are going for about $0.30 – or $30 to cover our 100 shares.
So by selling those options, I instantly make $30 on my SLV shares.
And as long as the price of SLV doesn’t go up above $22 (the strike price I set when I sell my call option by the time my options expire)…
I get to keep my SLV shares and do it again next month.
Now, that $30 of income of my initial $1,900 investment in SLV may not sound like much.
After all, it’s “only” 1.58%.
But here’s the thing – that’s from just one month and one trade. I can make a similar trade next month…
And the next…
And the next. On and on. As long as I want to. Even without compounding, that’s more than 18% income a year…
On a stock that doesn’t even pay any dividends!
The beauty is that I can easily adjust the trade for my risk tolerance and income needs.
If I want more money, I can choose a strike price closer to SLV’s current price. That makes it more likely that I’ll have to sell my shares at the end…
But it also gives me more income now.
Or I can choose a strike price further away from the current share price and accept a lower premium in return for less risk.
The same goes for the expiration date, which I also get to pick when I sell the covered call.
But before you place your first trade, you need to get approval from your broker:
How to Get Approved for Covered Calls
Now, every broker is a bit different, and there are way too many for me to run through them all.
But, it’s a very, very simple process. Here’s what to do…
When you set up your options account, your broker will ask you to fill out an application.
Each broker has about four or five levels of options trading authorization or clearance. For covered calls, all you’ll need is the lowest, easiest-to-get level, the one that enables covered calls.
Like many things in investing, each broker assigns levels a little differently. Here are three examples:
This table is from Investorplace:
Our friends at Fidelity offer different levels between regular and retirement brokerage accounts:
Unlike most other brokerages, the folks at Charles Schwab decided that starting the clearance levels at Level 0 (zero) makes more sense than just starting at Level 1.
It does not, but that’s how they roll:
To obtain authorization, you either fill out an authorization request form or give your information over the phone to a broker’s registered representative.
I suggest calling first to determine the easiest path.
Here is the best news: you only need options trading Level 1 (or Level 0 at Schwab) for covered calls. Anyone with a brokerage account and money to invest will be approved at a minimum for Level 1 (Level 0 at Schwab) options trading.
This process can be instant. It may also take 24 hours.
So don’t waste any time – go to your brokerage account now and set your account up for Level 1 options trading so you can start collecting monthly or even weekly income from SLV stock!
Pro Tip: If you don’t want to trade covered calls with real money yet, you can practice by opening up a paper trading account with your broker.
Then when you’re ready, here’s what to do step-by-step:
How to Place a Covered Call
Placing a covered call is straightforward because it’s such a popular trade.
Brokers should have trade entry screens set up for covered calls already.
Sometimes covered calls are referred to as “buy-writes” or “covered stock,” – but the entry is always the same, buy the stock and sell a call.
Let’s use SLV as an example:
When you open your broker’s trade entry screen, it should look something like the example above.
Your broker will already have it set up to buy 100 shares of stock and sell to open 1 call. (Keep in mind, you need to do covered calls in increments of 100 shares – so if you want to do 3 covered calls, for example, you’d buy 300 shares and sell to open 3 calls.)
You only have to pick the option’s expiration (about 30 days out if you want a monthly covered call, 1 week if you want to do weekly covered calls, etc.).
Then you pick the strike (how high you think the stock will go before it hits a cap).
Finally, you’ll enter the price you want to pay (the net debit). It should be around the midpoint between the ask and the bid prices but no higher than the asking price.
And that’s it!
How and When to Close a Covered Call
Closing your covered call is even easier. You basically have nothing to do!
When you get to the expiration date you chose when you entered the trade, your covered call will either expire in the money (when the stock price is higher than, or equal to, the strike price) or out of the money (when the stock price is lower than the strike price).
If the trade is in the money, your call will be exercised, and your broker will automatically get rid of the call and sell your shares out.
You have nothing to do except get the cash in your account. In this case, you will have achieved max gain on the trade.
If the trade is out of the money, your option will expire for zero (meaning you keep all the money you collected from selling the call), but your shares will remain.
In that case, when the market reopens, you simply sell to open another call against your shares.
Once again, you can use whatever expiration and strike you prefer.
The only difference is you don’t need to rebuy shares, so the trade is simply sold to open a call.
Your broker knows you own the shares already, so no additional steps need to be taken.
You can see what this looks like in the screenshot below:
You can see that it’s just a simple one-line entry.
This is a credit trade since you’re receiving the cash from selling calls, so you’ll use a limit order as seen above.
Like before, you’ll want your limit price to be the midpoint between the bid and the ask price of the call.
You can make these trades as often as you’d like… every week… every month… whatever you choose. It’s up to you.
Just remember – you can only sell covered calls once at a time for every 100 shares of a stock you own.
So if you want to make this trade weekly, you need to be selling calls that expire in a week. If you want to make it a monthly trade, sell calls that expire in a month, and so on.
Pro Tip: For a better chance at buying and selling at the perfect time, I recommend paying attention to what other investors are doing using Market Chameleon. You can view the current trade count, 90-day national average, and more stats for free.
And of course, I provide weekly covered call trade ideas, updates, and analysis to my Options for Income Pro subscribers. Click here to join today.
There you have it.
My no. 1 stock to trade covered calls on – a one trade retirement plan you can use to start generating extra cash almost immediately.
It doesn’t take a mathematician to become the best options trader, but it does take some discipline.
That’s why following these basic steps is the easiest way to get you on the road to successful options trading.
I’ve been trading options for 24 years, and this is the most reliable way to make money in the markets… And the easiest way to win 95% of your trades.
I didn’t just make that number up – that was my win rate for covered calls I sent to my readers in 2022. And I’m not slowing down.