What Is A Covered Call?
A covered call is a position that consists of shares of a stock and a call option on that underlying stock. When you execute a covered call, you sell the call option while owning the underlying stock. Covered calls give the right to purchase the underlying stock at a set price and a specific time. And to avail of this, the buyer of the call has to pay a premium to the seller. This premium is the primary reason many investors adopt this strategy. There are many stock advisory services that recommends few of the best stocks to its members and subscribers.
At the time of maturity of the covered call, there are two possible situations:
- The price of the stock is less than the strike price
- The option expires and there is no further action
- The price of the stock is higher than the strike price
- The option is executed, and you automatically sell your shares at the strike price
Whatever be the situation, the seller of the call option has already received the premium upfront. Hence the buyer accepts this risk when buying the covered call. By using the stock signals, you can avoid hours of technical analysis to understand the market.
In order to take maximum benefit out of the call option, the best time to buy a covered call option is:
- When the stock price has risen to your target value
- When a huge jump in price is expected following a big company news
How To Pick The Best-Covered Call Stocks?
Every covered call trade revolves around three components: the underlying stock, the term, and the strike. In order to select the best-covered call stocks, all three must be considered before you make a decision. Based on your investment strategies, you have a few options to take into account to pick the best-covered call stocks:
- Since the performance of the stock will decide the return on investment, pick stocks that you will choose to make a part of your portfolio. A stock that has a declining price trend will make it difficult for you to make a profit
- Always take into account that the premium is worth the risk you are taking on the covered call trade.
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List of Best Stocks for Covered Calls in 2022
Using a covered call trade strategy during a bull market will underperform stocks but they will still realize profits. Below we have compiled a list of best stocks for covered call strategy which can yield good premiums/profits during 2022:
- ConocoPhillips (NYSE: COP)
- Oracle (NYSE: ORCL)
- Verizon Communication (NYSE: VZ)
- Pfizer Inc. (NYSE: PFZR)
- Devon Energy (NYSE: DVN)
- Advanced Micro Devices (NASDAQ: AMD)
- Nvidia (NASDAQ: NVDA)
- Ford Motor Company (NYSE: F)
ConocoPhillips (NYSE: COP)
ConocoPhillips engages in the exploration, production, transportation, and marketing of crude oil, bitumen, natural gas, natural gas liquids, and liquefied natural gas on a worldwide basis. Solar energy stocks have led this quarter’s stock market gains.
ConocoPhillips reported outstanding operational performance in the fourth quarter report for the year 2021. The company generated strong returns on and of capital for its shareholders and closed on two significant, highly-accretive acquisitions in the heart of the Permian Basin. The company generated $8 billion adjusted earnings and $2.27 earnings per share. Also, ConocoPhillips paid $2.4 billion in cash dividends to shareholders. The company reported a 14% Return on Capital Employed and generated a free cash flow of $10.4 billion
ConocoPhillips also forecast average production of about 1.8 million barrels of oil equivalent per day in 2022 and plans to invest $7.2 billion in capital expenditures. The company recently completed the purchase of Shell’s interest in the Permian for $9.5 billion in cash.
The ConocoPhillips share is currently trading at a price of $94.86. The company has a market valuation of $94.86. As per CNN money, analysts offer a 12-month price forecast for of maximum $128, a minimum of $77, and a median target price of $106.
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Oracle is a computer technology corporation best known for its software products and services like Java. Through the company’s four main business segments—cloud and license, hardware, and services—Oracle sells its cloud-engineering services and systems and database management systems. Semi conductor stocks are one of the best investment opportunities.
In the second quarter financial report, Oracle announced revenue of $10.4 billion, representing an increase of 6%. Within the revenue-generating segments of Oracle, Cloud services and license support revenues were up 6% and Cloud license and on-premise license revenues were up 13% and Non-GAAP earnings per share were reported at $1.21, an increase of 14%. These strong results are being driven by the 22% growth of the company’s infrastructure and applications cloud businesses
Oracle has a market capitalization of around $75.97. The share of the company is trading at a price of $75.97. As per CNN Money, analysts offer a 12-month price forecast of a maximum of $126, a minimum of $83, and a median target price of $105.
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Verizon Communication (NYSE: VZ)
Verizon communication is s one of the world’s leading providers of technology and communications services. It operates through two segments, consumer and business. Tech Stocks is one of the best investment option.
- Verizon Consumer Group – It provides consumer-focused wireless and wireline communications services and products.
- Verizon Business Group – The Business segment provides wireless and wireline communications services and products, video and data services, corporate networking solutions, security and managed network services, local and long-distance voice services, and network access to deliver various Internet of Things (IoT) services and products.
The company reported a fourth-quarter earnings report where it delivered strong financial performance. The company reported a total of $34.1 billion in earnings, representing a decline of 1.8% year on year. Earnings per share were reported at $1.31, which increased by 8.3% year-on-year. During the quarter:
- 11.4 million wireless postpaid device activation
- 1.1 million wireless retail postpaid net addition
- 6.7 million wireless postpaid upgrades
- 47,000 wireless retail account net ads
The company’s 2022 outlook is positive and progressive. Verizon expects service and other revenues to increase by 1% -1.5% and total wireless revenue growth are expected to be between 9% to 10%.
Verizon has a market capitalization of over $225 billion. The share of the company is trading at a price of $53.67. As per CNN Money, analysts offer a 12-month price forecast for of maximum $71, a minimum of $52, and a median target price of $58.5.
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Pfizer Inc. (NYSE: PFZR)
Pfizer Inc. is a research-based global biopharmaceutical company. The Company is engaged in the discovery, development, manufacture, marketing, sales, and distribution of biopharmaceutical products. Its global portfolio includes medicines and vaccines. Get to know best vaccine stocks to invest in now.
The company recently published its fourth-quarter report for the year 2021 reporting strong financial performance. Total revenue was reported to be $23.8 billion, a 106% increase year on year. Adjusted earnings per share were reported at $1.08.
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Pfizer was ranked #2 amongst large biopharma companies, according to a patient view global survey, and is #4 on Fortune’s World’s most admired companies list. Also, the company achieved 1.4 billion patients with its vaccines and medicines, during the year 2021.
For the year 2022, the biopharma company forecasts record-high revenue, from $98 billion to $102 billion, and the targeted Earnings per share are $6.35 and $6.55. Moreover, a strong balance sheet & anticipated near-term incremental free cash flow is expected to allow Pfizer to continue growing dividend & pursue new business development.
Pfizer has a market capitalization of around $264 billion. The company’s share is trading at a price of $46.94. As per CNN Money, analysts offer a 12-month price forecast for of maximum $76, a minimum of $49, and a median target price of $57.
Devon Energy (NYSE: DVN)
Devon Energy is a leading oil and gas producer in the U.S. with a premier multi-basin portfolio headlined by a world-class acreage position in the Delaware Basin. Devon’s disciplined cash-return business model is designed to achieve strong returns, generate free cash flow and return capital to shareholders, while focusing on safe and sustainable operations. As per the CEO, these principles have positioned Devon to be a prominent and consistent builder of economic value through the cycle. Get to know the list of crypto mining companies that are leading the industry.
The company recently reported financial and operational results for the fourth quarter of 2021. Total earnings were reported at $4.3 billion and Net earnings totaled $1.4 billion. Earnings per share were reported to be $2.23. The company delivered strong liquidity of $2.3 billion in cash and an improved debt position. The company was able to reduce debt by $1.2 billion and the net debt to equity ratio stood at 0.8 times as of 31st Dec 2021. Devon Energy has a history of 29 consecutive years of dividend payment. For this quarter, the company announced a $1 dividend per share. There are multiple paid courses and technical analysis books available which provide in-depth knowledge about Technical Analysis.
The company is well-positioned for strong growth for 2022. Total production is expected between 570-600 MBOED and Devon Energy is well-positioned for an attractive free cash flow yield.
Devon Energy has a market capitalization of $39.55 billion. The share of the company is trading at a price of $59.55. As per CNN Money, analysts offer a 12-month price forecast for of maximum $70, a minimum of $60, and a median target price of $59.54.
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Advanced Micro Devices (NASDAQ: AMD)
Advanced Micro Devices, Inc. is a global semiconductor company. The Company’s segments include:
- Computing and Graphics segment- It includes desktop and notebook processors and chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services
- Enterprise, Embedded, and Semi-Custom segment – This includes server and embedded processors, semi-custom SoC products, development services, and technology for game consoles.
The company recently published its annual report for the year 2021, where it reported a record revenue of $16.4 billion an increase of 68% from 2020, and a gross margin of 48% was reported. In addition to it, the company reported a significant growth in profitability, net income was reported at $3.2 billion and earnings per share were reported at $2.57. Moreover, operating cash flow was reported at $3.5 billion a 229% year-on-year increase. AMD reported a record free cash flow of $3.2 billion, an increase of 314% was recorded.
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The outlook for the fiscal year 2022 is promising. AMD expects a 31% growth in revenue and gross margin to be 51%.
Advanced Micro Devices has a market capitalization of $200 billion. The share of the company is trading at a price of $123. As per CNN Money, analysts offer a 12-month price forecast for of maximum $246, a minimum of $100, and a median target price of $156.
Nvidia (NASDAQ: NVDA)
NVIDIA is a graphics card manufacturer and graphics processing unit (GPU) designer. The company produces a range of graphics and general-purpose GPU (GPGPU) products for supercomputing and AI acceleration, as well as rack-mounted AI acceleration units and servers for GPGPU. NVIDIA makes some of the most recognized consumer graphics cards under GeForce branding. With more than 200 million gamers, NVIDIA GeForce is its largest platform for gamers.
NVIDIA recently published its annual report for the year 2022. The company reported revenue of $16.7 billion, an increase of 53% from last year.Net Income of $4.3 billion, and earnings per share was reported at $6.9, a 53% increase from last year. The year was a breakout year for NVIDIA’s computing platforms. The company’s pioneering work in accelerated computing has led to gaming becoming the world’s most popular entertainment, to supercomputing being democratized for all researchers, and to AI emerging as the most important force in technology.
For the next quarter, the company expects revenue to be approximately $5.3 billion and gross margins to range between 63.8% to 66%.
NVIDIA has a market capitalization of over $607 billion. The shares of the company are trading at a price of $243.85. As per CNN Money, analysts offer a 12-month price forecast for of maximum $400, a minimum of $210, and a median target price of $350.
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Ford Motor Company (NYSE: F)
Ford Motor Company is an automobile company that designs, manufactures, markets, and services a full line of Ford trucks, utility vehicles, cars as well as Lincoln luxury vehicles. The Company operates in three segments:
- Automotive – This segment is engaged in developing, manufacturing, distributing, and servicing the vehicles, parts, and accessories of Ford and Lincoln vehicles
- Mobility – This segment primarily includes the development of Ford’s autonomous vehicles and related businesses
- Ford Credit – This segment is comprised of Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities.
The company recently published its fourth-quarter results for the year 2021. Revenue was reported to be $37.7 billion, an increase of 5% majorly due to y higher net pricing and mix improvement. Earning per share was recorded at $0.26. There has been a lot of focus on the long-term investment stocks.
For the coming year, the company has plans to unlock new growth opportunities. The company announced plans for 240GWh global battery capacity by end of the decade and an $11.4B investment in BlueOval City and BlueOval SK Battery Park to build the next-generation electric F-Series pickups and advanced batteries. Also, Ford Motors is on the path to double annual BEV capacity to 600K by 2023 and aims to be number 1 BEV in the U.S.
Ford Motors has a market capitalization of over $70 billion. The company shares are trading at a price of $17.56. As per CNN Money, analysts offer a 12-month price forecast for of maximum $30, a minimum of $13, and a median target price of $22.5.
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The covered call trading strategy is attractive but it comes with its risks. The above-mentioned companies have been selected based on the company’s growth and plans. The strike price for the trade can be set using the expected future growth and the forecasted growth price. And also, the current on-goings and financial performance of the company have been considered to assure that the company is worth taking the risk for covered call strategy.
The above list of companies is the best stocks for covered calls for the year 2022.
Disclaimer: None of the information published in this article should be construed as investment advice. Article is based on author’s independent research, we strongly advise our readers to always do their due diligence before investing.
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