From the previous post, ATM ($90 call) covered call gives one 10% downside protection, 65% ROI/Yr; ITM ($87.5 call) has 11.47% downside protection, 56% ROI/Yr; OTM ($92.5 call), 8.77% downside protection and 74% ROI.  I’ll select either ATM or OTM calls, in this case.

The stocks that are of high ROI are listed on top of the table with 3 different strikes: ATM, ITM and OTM, for comparison.  There are a total of 6 such stocks to consider.

From Row 27 and down are list of stocks still with great but lower ROI.

Column M is the sum of ROI of the covered call + dividend yield.

*Stocks in capital letters with * are new candidates of my screening result with the following criteria: Div yield>5%, Beta>1, Price above 50 and 200 SMA, Sales growth over the past 5 years: >15%, optionable and the RSI is not overbought.

A bit more detailed analysis of 3 stocks of the top 6 will be provided separately.

An ATM covered call (Jan. 15, ’16, 19 strike) will produce 80%  annualized return.  Although SLW is trading below 50 and 200 SMA, the upside for SLW is much higher than the downside.

RNF, closed at $14.94, has been trading above 200 SMA; MACD is neutral, RSI is neutral to slightly high at 59%.  Six analysts give a rating of hold and 1 buy with an average price target of $16.88. The price pattern currently is trading at a very tight range, with a coiled spring pattern.  It may break above $15 or down to $13.

Dividends: Dividend yield: 9.7%.

 A covered call with an ATM strike of $15 will provide 97% annualized ROI.

RNF looks quite impressive and I placed an order to buy RNF and sell RNF Jun 2015 $15 call for a debit of $14.4.  One downside is the option volume is on the low side.

• Overall market condition is bullish or neutral (We take a different strategy for bear market).  I use Chartadvisor.com (Weekly Summary, published every Friday) and Schaeffersresearch.com’s Monday Morning Outlook (published every Saturday) as well as technical analysis of  S&P 500, DJ’s Industrials and Nadaq indexes to determine the market sentiment.
• The stock price chart must be bullish (Stock price has to be above 50 and 200 SMA, on a 1-yr or 2 yr chart, at least above 200 SMA).  This makes it less likely for a stock to suddenly go down.  Remember, covered call is a bullish strategy and we may lose money if the stock goes down. I usually use Stockcharts.com and also use yahoo’s interactive charts.
• Price> $10 (excluding penny stocks which are too speculative in nature).
• Sales Growth of past 5 years > 15% (suggesting growth stock with expanding business)
• Price > SMA50 and > SMA200 (indicating the stock is in a upper trend)
• Volume >500K (relatively high option volume and open interest, enabling the buy and sell of option contracts.  We need to be able to get in and out of positions easily.)
• Optionable (a must for covered call) with high option premium (high time value).  This is where the profit is.
• Dividend.  I look for stocks that pay >5% dividends (annualized).  There are more and more stocks these days that both pay a decent dividend as well a nice option premium (my favorite stock is LVS, which is relatively stable that pays a high dividend.  AAPL is also on my list).

Sometimes FinViz.com will give you a very long list based on the criteria I enter.  In that case, I may change the selecting criteria (e.g., increasing dividend to 10%) to narrow the list down to a manageable 10 or less.  Then I use a spreadsheet to compare the percentage of option premium using at the money call to determine which stock has the most time value.  Finally, I choose stocks that have the best annualized return (option time value + dividends).