The folks over on Yahoo's "Just Covered Calls" board have been very helpful on this front - it seems that optimally, the investor/trader using this strategy needs to have a routine, and a second pointer was to only pursue stocks you wouldn't mind owning, in case you end up holding when they are not assigned. I've still got some work to do on developing the routine, but in the meantime, I've developed some ground rules for choosing the initial stocks.
First, I put together a candidate list from some Motley Fool information - they have a lot of material on high-yielding stocks, for example. Second, I took some cues off of what the other covered call group members are using. And third, I filled out a list of 30 potentials using a "dogs of the Dow" screen: which of the 30 DJIA stocks are performing worst year to date.
With this list of thirty, I put together a spreadsheet that would further screen them using some basic rules:
- A four or five star rating from both Morningstar and S&P (surprisingly, this eliminated IP, which I currently hold, and disqualified my ACM, the company I currently work for, where I hold shares!);
- There must be a dividend, and I am looking for >1%, but optimally 2%-5%;
- The price at the time of the purchase should be near the midpoint of the 52-week high and low; and
- The companies must be a significant brand name to ensure longevity and company quality.