Try the Covered Call Analyzer
Using the Input Parameters Form for In-the-Money Calls
(the Purchase Price is above the Strike Price)
When you open the Analyzer input parameters form the first time, there will be no values in any of the fields. It is suggested that you click on the "Set to Default Values" button to set values for each Parameter. You can then go back an reset any of them to your own value. Your parameters are compared against the stocks and options traded today which have been uploaded to our server. We upload data daily after the close of the markets, usually around 4:00 PM Central time. Those qualifying will be determined and listed on the Results page after you click the "Submit these Parameters" button. You may want to print this page and have it available for review as you input your own parameters or review your results. Try not to be too broad or too tight in your selections. The Analyzer will tell you if your Parameters have produced no qualifying stock/call combinations. In this case, you need to broaden your Parameters. We have set the stock price range from $5 to $40, since these prices usually produce the highest percentage returns. Also, since the default money available is $5,000, you cannot buy 100 shares of stock priced at over $50. But you can set set the price range anywhere from $5 to $100 depending on your money available to purchase each stock.
In-the-Money Calls have a purchase price that is higher than the strike price of the stock. They are usually sold when the share price is expected to go down and the investor doesn't want to lose the stock but wants the call premium to offset the loss in stock price. For In-the-Money Calls, the data provided to the Analyzer is the two lower strike prices below the purchase price for the next two months.
Definitions for the Input Parameters Form
Money
Available
Commissions
Share
Price
PE
Ratio
Hi/Lo
Ratio
Expiration
Month
Spread
Option
Price
Open
Interest
Daily
Option Volume
Return
if Called
Money available - input how much cash you can invest in any given stock. Since option contracts represent 100 shares, and there will be commissions on the purchase of the underlying stock, the Analyzer will calculate how many shares you can purchase (in 100 share blocks) after the commission is taken into account. Default is set to $2,000.
Commissions - in today's investing environment, commissions to buy and sell stock vary widely. Deep discount and on-line brokers offer very low commissions. Full service brokers generally have higher commissions. Many commissions are based on a single trade, but some are "in-and-out". Commissions for option trades can be higher than the stock transaction commission. Because of the wide variety of commissions available, you are asked to input both the stock and call commissions in the input form. Sometimes, there is a per call contract commission. If this is the case put it in the "per contract" field on the form. The Analyzer calculates the returns after commissions for the stock purchase and call sale. A commission is charged if the underlying stock is called. This "second" commission is included in the "return if called" calculations. Default is set to $19.95 to purchase/sell stock and $9.95 to sell/purchase calls plus $1.50 per call contract.
Share price - select the range for the stock share prices you want to consider. Remember that you have to buy in 100 share blocks. This means that you need at least $3,000 to buy a $30 stock. The Analyzer does not consider any stocks selling for less that $5.00 or over $100.00. Default is set to $5.00 to $20.00.
PE ratio - price/earnings is a measure of if, and how much, the company is earning. It is calculated by dividing the price of the shares by the annual earnings per share. If a stock price is $20.00 and the annual earnings are $1.00 per share, then the PE Ratio is 20 ($20.00/$1.00). Generally, the lower the PE Ratio the better. The default maximum PE Ratio is set to 30. The Analyzer allows you to select and analyze companies with high PE Ratios or negative earnings. By clicking on the "Include Stock/Call Combinations with High PE or negative earnings" button on the Results page, you will get another results page which represents all stocks meeting your parameters with the PE ratio parameter ignored.
Hi/lo ratio - this is a measure of where the stock price is in relation to its 52-week high and low prices. Many people do not want to consider a stock that is at or near its high price, assuming there is more potential for downside rather than continued upside. It is assumed that a stock with good earnings and a price off its high has more upside potential. The default value for hi/lo ratio is 90%. This means if the 52-week high was $20 and the 52-week low was $10, the current price should not be over $17. If you get a number over 100% or a negative number, it means that today's stock price is at a new high or a new low.
Expiration month - expiration occurs on the Saturday following the third Friday of the month. Individual traders must exercise on or before that Friday. This field defaults to the next month expiration date beginning ten days before this month's expiration. The last week before expiration does not have very good premiums. If you do not get good results for the default month, you may want to set the expiration month to the next month and then rerun the Analyzer.
Spread - the difference between the strike price and the current share price. In-the-Money calls have a purchase price higher that the strike price. If the purchase price is $23.00 and the strike price is $22.50, the spread is $0.50. The Analyzer will then only consider calls that have a purchase price that is greater than or equal to $0.50 above the strike price. The default is set to $0.25.
Option price - the minimum amount you want to receive per share as an option premium. You should be looking for option prices that are fairly high. Selling 3 contracts at $0.10 ($.10 x 300 =$30.00) may not produce enough to offset the commission charges. The sale of the call contracts is money in your pocket so look for the good premiums. The default is set to $0.25.
Open interest - represents how many call contracts are outstanding. You should set this parameter to 100 or greater. This means that there is an interest in these options and that there is a market for them. Default is set to 1000.
Daily option volume - how many call contracts traded today. Similar to open interest, you want the call options to have some daily interest. Default is set to 100. Open interest does not include the day's volume.
Returns - This is where you get to the real purpose of using the Analyzer. The Analyzer objective is to have a real return at expiration of at least 5%. Since we cannot predict where the stock price will be at expiration, we list two returns - actual return if the stock is called at expiration (this is what we want) and actual return if the stock price is the same as the original purchase price at expiration. The "Return if Called", calculated by the Analyzer, includes the appreciation to the strike price plus the premium (income). The "Return if Same", calculated by the Analyzer, represents only the call premium, because the purchase price has not changed. These actual returns are shown in the Results table after you submit your parameters and will be the same for In-the-Money calls.
You
can return to the default values any time by clicking:
When
you are ready to input your Parameters for analysis click:
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