Here’s the Method a Trader Uses to Quickly Identify Superior Covered Call Opportunities When Screening Stocks

Mastering Covered Calls: A Smarter Approach

Many traders encounter difficulties with covered call strategies not because the method itself is flawed, but due to starting off on the wrong foot. Randomly browsing tickers, chasing high yields, or forcing trades on unsuitable stocks can quietly erode an account over time.

In a recent video, options strategist Rick Orford shares his step-by-step process for filtering the entire market to identify only the best candidates for covered calls—long before analyzing charts or strike prices.

Latest Updates from Barchart

The key difference between wishing for a successful income strategy and deliberately creating one lies in the approach you take.

Step 1: Filter Out Unnecessary Risk Early

Rick’s initial screening criterion is straightforward yet effective: focus on market capitalization. By limiting selections to companies valued at $3 billion or more, he instantly excludes micro-cap and illiquid stocks that often:

• Have limited trading volume
• Feature wide bid-ask spreads on options
• Expose sellers to significant gap risk that premiums can't offset

Covered calls thrive on consistency, not on speculative windfalls. This single filter greatly enhances the quality of potential trades.

Step 2: Harness the Power of Implied Volatility

Implied volatility (IV) is often misunderstood in options trading. Rather than indicating direction, IV reflects the market’s expectations for price movement, directly impacting the premiums you can collect.

Rick narrows his search to stocks with IV between 30% and 100%, focusing on those where:

• Option premiums are higher
• Time decay accelerates in your favor
• You’re fairly compensated for the risk of assignment

For those selling covered calls, IV isn’t just background noise—it’s a crucial driver of income.

Step 3: Use IV Rank to Ensure Premiums Are Truly Elevated

High IV by itself isn’t sufficient. Sellers need to confirm that current IV is high relative to its own historical range to justify the risk.

This is where IV Rank comes into play. IV Rank compares current IV to its levels over the past year. A higher IV Rank signals that premiums are elevated compared to their usual range.

Rick sets a minimum IV Rank of 30%, increasing the odds of:

• Securing better entry prices
• Benefiting from quicker premium decay
• Gaining more flexibility in managing trades

This step helps you avoid selling calls when volatility—and thus premiums—are already low.

Step 4: Broaden Your Scope with ETFs and Weekly Options

Rick further refines his process by including ETFs as eligible securities. ETFs often provide:

• Smoother price movements
• Greater diversification
• Lower headline risk compared to individual stocks

He also incorporates weekly options into his criteria, which allows for:

• More frequent opportunities to generate income
• Improved timing around short-term volatility
• Quicker feedback on strategy performance

With these filters in place, Rick works from a refined list of stocks and ETFs that already meet stringent income requirements.

Why This Screening Process Is Essential

One of the most common errors traders make with covered calls is focusing on the strike price before selecting the right stock. Rick’s method reverses this logic.

By screening first, you can:

• Avoid forcing trades that don’t fit your criteria
• Minimize emotional decisions
• Create a repeatable process for generating income

This approach transforms covered call trading from a random endeavor into a disciplined, systematic strategy.

Key Takeaways

Success with covered calls isn’t about increasing the number of trades—it’s about starting with the right conditions.

Rick’s method, using Barchart’s covered call screener, quickly narrows the market to a shortlist of strong income candidates.

Watch the video to see Rick demonstrate his screening process step by step:

• Watch Rick’s full lesson on our official YouTube channel
• Subscribe and enable notifications to stay updated on future options tutorials