Beyond the Yield Chase: A Systematic Approach to Identifying High-Quality Covered Call Opportunities

For many retail traders, the covered call strategy—selling call options against owned stock—fails to deliver consistent income not due to a flaw in the concept, but in the execution. The common pitfall is beginning with the option strike price rather than a fundamentally sound underlying asset. Haphazardly scrolling through tickers in pursuit of high yield often leads to subpar, risky positions that erode capital over time.

In a recent demonstration, Barchart options strategist Rick Orford detailed his systematic screening process designed to filter the entire market for high-probability covered call candidates within minutes, long before analyzing a single chart.

Building the Foundation: Market Cap and Liquidity
Orford's first filter imposes a minimum market capitalization of $3 billion. This immediately eliminates micro-cap and thinly traded stocks, which are prone to erratic price swings and low liquidity—conditions antithetical to the steady, repeatable income goals of a covered call strategy. "Covered calls are about building reliable income, not betting on lottery tickets," Orford noted.

Harnessing Volatility: Implied Volatility and IV Rank
The next critical layer involves implied volatility (IV), a metric often misunderstood by newcomers. "IV doesn't tell you which way a stock will move," Orford explained, "but it quantifies the market's expectation of future movement, which directly translates into the premium you collect." He screens for stocks with IV between 30% and 100%.

However, high absolute IV isn't sufficient. Orford emphasizes the importance of IV Rank, which compares current IV to its historical range over the past year. By setting a minimum IV Rank of 30%, he targets situations where option premiums are rich relative to the stock's own history, stacking the odds in the seller's favor. "This step prevents you from selling calls when volatility is already depressed, ensuring you're adequately compensated for the risk," he added.

Final Refinements: ETFs and Weekly Expirations
To broaden and refine the opportunity set, Orford's screen includes Exchange-Traded Funds (ETFs) as a security type, appreciating their inherent diversification and typically lower volatility. He also incorporates weekly options by adjusting the "Days to Expiration" filter, which expands tactical opportunities and allows for more frequent income generation.

The result is a curated, short list of stocks and ETFs that already meet strict criteria for income suitability. "This process inverts the common approach," Orford stated. "By screening the stock first, you engineer success from the start. It transforms covered calls from a random hope into a systematic strategy."

Analyst & Trader Commentary:

Michael Tan, Portfolio Manager at Crestview Advisors: "Orford's methodology formalizes what institutional managers do intuitively. The focus on IV Rank is particularly crucial—it's the difference between getting paid for risk and just taking on risk."

David Chen, Independent Retail Trader: "As someone who's been 'chopped up' chasing yield, this top-down filter is a game-changer. It saves hours of research and forces discipline I didn't have before."

Sarah Jenkins, Financial Blogger & Former Broker: "While systematic screens are helpful, they're not a silver bullet. This process might overlook solid, low-volatility dividend stocks that are perfect for covered calls but have a low IV Rank. It's overly prescriptive for conservative investors."

Marcus "Razor" Reed, Day Trading Forum Moderator: "Finally, someone cuts through the guru nonsense. Most 'income strategies' are just underwriting cheap insurance on junk stocks. Orford's $3B market cap floor alone would have saved my followers thousands in blown-up accounts last year."

Ultimately, Orford's framework underscores that the key to successful covered call writing lies not in finding more trades, but in establishing superior starting conditions. By leveraging screening tools like those from Barchart, traders can shift from reactive speculation to proactive portfolio engineering.

Disclosure: At the time of publication, Barchart Insights held no positions in the securities mentioned. This article is for informational purposes only.