Eight Rules for Entering New Covered Call Positions

From Hooper and Zalewski, Covered Calls and Leaps

1. You can only establish new positions on down market days.
2. You must always only sell the near month call when entering a transaction.
3. Using the CSE screener to filter through all available covered call opportunities.
4. Select the highest yielding opportunities presented by the CSE screener.
5. Ensure the stock is an upward moving or sideways moving stock.
6. Ensure that the stock adheres to the buying low rule for covered calls.
7. Always give priority to maintaining acceptable levels of diversification between stocks and industries.
8. Buy the stock first and then immediately sell the call.

Now, just what does the CSE screen filter on? Here it is:

1. Uncalled return minimum of 4%.
2. Called return minimum of 4%.
3. PE <= 35.
4. Market Cap of $500 million or more.
5. Average broker recommendation of <= 2.5 (1 is a strong buy)
6. Aggregate of brokers recommending a "strong buy" or "buy."
7. Consensus EPS estimated for next year to be greater than this year.
8. Stock trading less than 75% of its 52 week trading range.

And there you have it ... the steps for entering a new covered call position as well as the screen.