How to Find the Right Covered Call Advisor

  by Shelley Seagler

Stocks, bonds, and funds are the most popular securities for investors to achieve their financial goals. For example, target-date retirement funds provide an easy way to balance growth, risk, and income as you approach retirement. Equity-listed options, calls and puts, aren’t as standard as stocks and bonds, but they provide an unprecedented amount of flexibility.

You can use options for everything from engaging in high-risk speculation to generating low-risk retirement income. The possibilities are endless with the right advice, knowledge, and tools in your repertoire.

Let’s look at what makes covered calls desirable, how to choose a covered call advisor, and whether you should take a DIY approach instead.

What Are Covered Calls?

A covered call is a popular strategy whereby an investor sells call options against a long stock position. For example, an investor that owns 500 shares of stock might sell five call options. The investor immediately receives the premium income in exchange for the obligation to sell the stock if the price reaches the strike price.

covered call advisor

Covered Call Option Diagram – Source: The Options Bro

There are two types of covered calls:

  • Buy-writes occur when an investor buys a stock and simultaneously sells call options. The strategy typically involves seeking out stocks that are ideal for covered calls and using them to generate income.
  • Overwrites happen when an investor already owns stock and sells call options. Unlike buy-writes, the income from covered calls tends to be a side-effect of stock ownership with overwrites.

There are several reasons to use covered calls:

  • Covered calls generate income from equities beyond dividends. In fact, investors can use the strategy to generate income from stocks that don’t pay any dividends.
  • Covered calls enable investors to target a specific selling price. If an investor is already planning to sell a stock, they can use covered calls to generate an extra premium on top of the sale price.
  • Covered calls provide limited downside protection. If the stock price drops, the premium from a covered call can offset part of the loss and lower the breakeven point.

While the basic concept behind a covered call is straightforward, finding and managing covered call positions can be challenging. You have to select the right stocks, determine the right strike price, and choose an expiration date, and potentially roll up or roll out the position to avoid assignment. Fortunately, advisors can help alleviate some of these challenges.

How to Find the Right Advisor

Most financial advisors use mutual funds and exchange-traded funds (ETFs) to help clients achieve their financial goals. While these funds provide a lot of flexibility, they are typically limited to conventional stocks and bonds. That said, some advisors specialize in using options and other less traditional securities to help clients reach their goals.

Don’t miss: 5 Tips for New Covered Call Writers

Options provide additional flexibility to a portfolio. For example, advisors can limit downside risk using protective puts, enabling their clients to remain in the market. Advisors can also use covered call strategies to bolster retirement income during periods where fixed income may be insufficient (e.g., low bond yields).

Whether you are an experienced covered call trader or want some help to implement the strategy in your portfolio, here are some key attributes to look for in a covered call advisor:

  • Experience. Past performance is never a guarantee of future results, but you should seek out advisors with a well-defined strategy and avoid those with a lack of experience or no track record.
  • Expenses. Advisors may charge a flat fee or a percentage of assets under management. Either way, you should stick to advisors with reasonable fee levels to maximize long-term performance.
  • Minimums. Some advisors have a minimum balance that you must maintain. For example, you may need $250,000 in assets to qualify, which may be more than some investors own.
  • Support. Find advisors that listen to your goals and help craft a plan to reach those goals. The best advisors will work with you and always be available to answer any questions.

You can find a lot of information about an advisor on Form ADV, which outlines how they charge for their services, details any conflicts of interest, and contains any past disciplinary actions.

Snider Advisors specializes in using covered call options to generate a consistent retirement income. With nearly 20 years of covered call experience, our Dallas-based asset management team will manage your trades and even implement advanced strategies to maximize your monthly income. However, what makes Snider Advisors even more unique from other financial advisors is the fact that we will also teach you the same covered call strategy we implement on our client’s portfolios.

Should You Do-It-Yourself?

Covered calls are a relatively easy and low-risk strategy, but there are many nuances. For example, what stocks are best suited for covered calls? What do you do if the stock appreciates or drops in price? What strike price and expiration should you use? Without a well-defined trading strategy, you may have trouble answering these questions.

New to covered call writing? Here are 5 tips to help you succeed

The good news is that many tools can help you get started on your own. For example, free covered call screeners can help identify stock and call combinations based on their income potential. You can use the screener results as a starting point for further analysis of each stock’s volatility, financial health, and other characteristics.

In addition to finding the right stocks, you need to predict how volatile they will be over time. The best covered calls are close enough to the strike price to pay a hefty premium but far enough away to avoid assignment. But, of course, you may be willing to sell your shares at expiration if you entered into the covered call position as a way to dispose of the stock.

covered call advisor

Snider Advisor’s Lattco Platform – Source: Snider Advisors

The Snider Investment Method provides a rules-based approach to finding and managing covered call positions. You’ll learn everything from selecting the right stocks based on their volatility and other factors to maintaining a portfolio of covered calls to maximize monthly income. You can even use our Lattco platform to find and manage your trades.

Start a free e-course today!

The Bottom Line

Covered calls are one of the most popular options strategies to generate an income. When looking for the right advisor, you should consider their experience, cost, and track record. Some advisors also provide the option of both hands-off asset management and guided do-it-yourself strategies, depending on your time and comfort level.

Whether you’re interested in a hands-off asset manager or some advice to get started on your own, Snider Advisors can help you reach your financial goals using the power of covered calls. Contact us today!

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