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- Automated Stock Market Trading System |
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Covered Call Help |
This list shows the stocks paying the highest "out of the money" (OTM) call option premiums. Out of the money means the Strike price is above the current Price so that appreciation can be made on the stock in addition to the premium. The Bid/Price field shows the premium being paid as a percentage of the last close price. The Call field shows the full percentage you will make if the stock also appreciates up to the strike price by the Expiration Date. The expiration date is always the third friday of every month.
The list also shows the P/E ratio, Historical Dividend Yield, and Earnings date. The P/E ratio is the Price per share divided by the last year's earnings per share. It is a measure of how expensive the stock is. This number by itself is not all that meaningful. It must be considered in the context of other stocks in its industry since there is considerable variance among industries. A much more meaningful measure is the projected change in P/E ratio given next years earnings estimate. When you click on the Symbol, it brings up the Key Statistics page in Yahoo finance. There it lists the Forward P/E and the Trailing P/E. When the Forward is lower than the Trailing, it means the company is making money. That gets me a whole lot more interested in the stock!
If the stock is paying a dividend, it will have an Ex-Dividend Date. If that date is between now and the Expiration Date, you will collect a dividend on the stock in addition to the option premium and price appreciation. Another important number is the Market Cap, or size of the company. Small stocks are generally more risky than big stocks. Market Capitalizations smaller than $200 million probably won't even be optionable. I will be willing to risk more money on companies with Market Caps over $1B.
I'll typically look at the Price/Sales and the Price/Book ratios as a measure of how expensive a stock is as well. If a stock has run up in price and has ratios greater than 2-3, I'll probably avoid buying it. I check out the Current Ratio too. That is a measure of cash on hand. It's this quarter's incoming cash divided by outgoing bills. If it's high, things are going well for the company at the moment and the stock will likely rise or at least not fall, which is what we want in a covered call.
Back to the Covered Call list now. Probably the most important field is the Earnings Date. I won't buy a stock that is going to release earnings before the expiration date. For better or worse, that is when the stock price will move and we'd prefer it not move much at all when we sell a covered call on it!