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Several years back, I ran a small study and found that it was often better
to sell covered calls (or the equivalent naked puts) on stocks that were
close (within a few percent) to
their intermediate moving average. The rationale is that stocks which are at
a large distance from their moving average often exhibit (and have
exhibited) high volatility, and often as not this volatility is to the
downside.
Add to this, only sell calls on dividend paying
stocks (where the dividend is, say, at 1east 1%), and this will help steer
you
away from the more speculative stocks.
Using the moving average and dividend rule of thumb, and throwing in an
additional criteria that the stock has to have positive earnings ona
trailing twelve month basis, then CAT, AA, PG, UTX, and MMM would be the
best buy/write candidates (see attached .csv file) from the DJIA stocks.
Keep in mind that the call premium will have the dividend subtracted out if
the stock goes ex-div. while you're holding the covered call position.
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Attachment:
Description: "dji_stocks.csv"
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