Generating Consistent Income with Covered Calls

Tony Zhang
July 14, 2017
3 minutes read
Generating Consistent Income with Covered Calls

Generating consistent income with covered calls can be achieved when using a disciplined and methodical approach. It’s important to understand your personal preferences before searching for income opportunities on your portfolio. Choosing expirations that suits your trading frequency and strike prices that fit your risk tolerance is critical for consistent results. Lastly, it goes without saying that there needs to be liquidity in those options. For financial advisors executing large orders, checking for liquidity is especially relevant. In this post, we’ll show you how to use OptionsPlay Canada provided by TMX to quickly find covered call income opportunities for your portfolio!

Expiration Dates

Based on frequency of trading, active investors should choose shorter dated options (3 weeks – 6 weeks), long term investors may opt for longer dated (2-3 months) and swing traders somewhere in between (6 weeks to 2 months).  Using OptionsPlay Canada you can choose your preference for short, medium or longer dated options under “Income Settings”.

Our research shows that it’s preferable to sell more shorter dated options in a year rather than fewer longer dated options. This is due to earnings cycles which adds uncertainty for option sellers. Longer dated options have a higher chance of including an earnings release, causing them to be subject to large price movements.

Short Dated:  Sell 12 x 1 month Calls = 4 out of 12 = 25% have earnings uncertainty

Long Dated: Sell 4 x 3 month calls = 4 out of 4  = 100% have earnings uncertainty

Strike Prices

The easiest way to gain consistency is to use the greek Delta as your method to selecting strike prices. Delta provides an approximation of the probability that the stock will stay below the selected strike price. By using probability to select strike prices, you’ll find better consistency compared to selecting a set percentage above the current price. Use the following graph to understand which Delta is suitable for your risk-tolerance:

Screening Tools

Generating income is valuable for any investor by reducing volatility while provide downside protection on a portfolio. It’s important to not only know how to choose the right options, but having the tools to do it. Use OptionsPlay Canada’s Income Settings to quickly find the covered call opportunity that suits your portfolio. Simply choose your desired time-frame and risk-tolerance and instantly see the best income strategy that fits your preferences!

Tony Zhang
Tony Zhang

Head of Product Strategy for OptionsPlay


Tony Zhang is a specialist in the financial services industry with over a decade of experience spanning product development, research and market strategist roles across equities, foreign exchange and derivatives. As the current Head of Product Strategy for OptionsPlay, Tony leads the research and development of their OptionsPlay Ideas & Portfolio platform. He has leveraged his interest in financial technology and product development to provide innovative, reimagined solutions to clients and the users they seek to serve. Previously he spent 7 years at with a capital markets and research background as a market strategist specializing in equity and FX derivatives markets.

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  1. Avatar Pascal Houde

    selling calls on stock you own is great when the stock remains side way or grinds higher but what are the possible strategies when stock drops. You may continue selling calls against it below your initial price point to see it rebound rapidly locking yourself into a loss. I would like to see an article covering this aspect.

    • Avatar Jean-Pierre Desloges

      Hi, One of the strategy in that case could be as mentioned in the last article (A Repair Strategy for Loblaws Companies Limited stock, Sept 28). Regards, JP

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