First Things First

This help page assumes that you are working from CallWriter's Global Select (Dividends) lists, which are lists of trade candidates including only the best stocks - as measured by earnings growth, size and other factors. These are some of the best stocks on earth, and while they are no guarantee of success, they do cut out a lot of the required research.

The principal culprits in bad covered call and naked put trades (the usual suspects) turn out to be the same things, over and over:

• Seriously over-valued stocks (fad stocks)
• Companies that lose money, poor fundamentals
• Small companies
• Low liquidity in the stock and low open interest in the calls or puts
• Pending significant news (earnings, clinical trials, etc.) that could rock the stock
• Price Spikes - price has recently run or gapped up
• Stock is selling off - even worse if its industry is, also

While there remains such a thing as bad luck, the usual suspects show up with devastating regularity. In fact, we can supercharge our covered call writing results simply by avoiding these suspects! You've heard that battles are usually won or lost before the first shot, and that is just as true when writing covered calls and naked puts.

What's really interesting is that EVERY ONE of these risk factors is observable, assuming you can read a chart. Every one. And you can quickly observe them using our Research Page. Here's more information about our Research Page and how it works.

You might wonder, how do you know if significant news is coming? After all, it can be devilishly tough for us retail traders to find news that the entire market is waiting for. Well, we have a way.

This help page provides a simple and quick roadmap to researching a company before writing it. Once you learn to focus on the things that matter - that pick your pocket - then the only things to worry about are bad timing and bad luck, which happen to all of us.

But 95% of the time, we covered call and naked put writers make our luck. This is how I do it.

The 6 Quickies Revealed

Remember, covered call and naked put writing is about writing the best stocks, or failing that, at least writing stocks that are unlikely to hurt us. Thus conservative and consistently successful covered call and naked put writing is largely about WHAT NOT TO WRITE.

Doesn't it make sense to look first at the things that are likely to hurt us? Yes, it does, and the key to quickly finding good trades is to look first at the things that instantly disqualify a potential trade.

Of course, my research is intertwined with my approach to visually scanning the lists. I tend to hide the return columns, since I care more about finding a stock with a bullish chart than the return. Just as we start with the highest returns on any sensible covered call or naked put list, once we are on the list it only makes sense to look for stocks with a bullish chart. Even if the goal is to write ITM or ATM calls, we are always better off with a bullish chart than a declining or undeterminable stock.

I look for good combinations of our MADI and VMI indicators, then look at the chart to visually confirm whether the chart is in fact short-term bullish. If that pans out, I look for earnings, since with precious few exceptions, I do not write across earnings dates. Next, I compare the stock to its industry peers to see if the expected bullish move also is happening in industry-leading stocks.

I then compare the call's implied volatility (IV) to the stock's 10-day and 30-day historical volatilities. If IV is too high, I tend to pass on the trade, because IV that is significantly high tends to signal an event that could rock the stock - maybe down.

Here are my Quickies, and they are all right on our lists, or just a mouse click away:

1.	MADI and VMI
2.	Daily Stock Chart
3.	Earnings
4.	Industry Performance
5.	Volatilities
6.	Which Strike?

Reminder: you can open the Research Page from any of these links on the lists. The illustration below shows which elements of the Research Page can be opened directly with a mouse click.

For more information on what is available in our Research Page, please see this explanation of our Research Page Matrix.

The 6 Quickies Explained

Again, I tend to hide the call return and put return columns, since I care more about finding a stock with a bullish chart than the return. If I find a bullish set up, the return has to be good. But I typically like to start with a stock about which I can form a bullish outlook - meaning bullish before expiration. Sticking with great stocks is a great start, but isn't a stock that (based on its chart) has a higher likelihood of going UP before expiration even better?

This approach works equally well for naked puts and covered calls (a synthetic naked put, after all), and works best with strong companies, mid-cap or larger. Using this bullish approach is no excuse to write the Usual Suspect stocks - the ones that cause the great majority of bad trades.

MADI and VMI

Let me say that I regard myself not as a timer, but a rational trader. I want to know where the strength is and get in on it. Having said that, once we select a trade and put it on, we timed it. We picked that trade at that time and must have had reason to believe it was a good "time" for that trade... the entry point. Consciously or not, we timed it. I just want reasons that I can clearly articulate (to myself) for the trade and the entry point.

I look for a stock that has a high likelihood of having sold off to test support - on volume - and thus poised to rise. For such a setup, the shorts have been or are almost all squeezed out, and the timid longs have mostly sold out. Now traders and bargain hunters will come back in, and so will some of the timid longs. This is why the stock is poised to rise: new buying is coming in and the selling pressure is off. No lectures here, but this is what traders do and I want to be in on it with them, to let the rising tide lift my boat.

The MADI and VMI and proprietary CallWriter indicators. The MADI tells us where the stock price is in relation to its 30-day and 50-day averages. The VMI tells us about recent volume momentum, comparing the volume levels over the last five days to the 65-day volume average. What I am looking for is a stock with one of the MADI values shown below, and small VMI arrows, which indicates that the test of support essentially is over. Now the stock can go up. This is not guaranteed, but it beats buying a stock that is really extended or at the top of its trading range!

Potential Upside Reversal off of Support
	These MADI values intimate (not guarantee) a possible reversal. Price is below the 20-day and testing the 50-day average. These MADI values are powerful when they coincide with these VMI arrows:
Support Being Tested on Volume Now
	What if the VMI arrows are not flat, but huge, with the same MADI values? The larger arrow suggests that the stock or index is in the middle of the test. I prefer the gunfight to be already over.
Granted, these are not the only good short-term bullish signals, but think about it... every bullish setup involves either 1) a volume test of some support level, or 2) a breakout above a range or wedge. I have found tests of support to be far more reliable when dealing with high-quality stocks.

Using this little technique of mine is not surefire, and sometimes the chart will not show what I am looking for. But no other methodology is surefire, either. I rely on market forces to do the work for me. Whether you write ITM, ATM or OTM, strength works. And if you are not looking for strength in your trades (well, and a decent return), then what, precisely, are you looking for?

The MADI and VMI appear right on the list.

Daily Stock Chart

Once I find a stock that fits the above parameters, the next thing is to look at a daily chart to confirm whether it in fact appears to have found support on volume. The chart in and of itself will never get me into a trade, but it can keep my out of one. I want to see strong volume on the support test, which includes sell-off volume on the way down. Candlestick analysis applies here, and there are too many to cover. However you analyze charts, you want to feel that the support test essentially is over. The trade may not be ripe for immediate entry, because I may want a day or two's confirmation. But sound stocks in a trading range can come back pretty fast!

Click the stock symbol link on the list to get a daily stock chart.

Earnings

If I like the chart, I look for the earnings date. With one exception, I do not want to write across an earnings report, meaning that earnings are due before expiration. Reason one is that you never know how the stock will react to earnings, and reason two is that the company could issue negative future guidance in the earnings release - and this will likely decimate the stock.

If earnings are due after expiration - preferably no earlier than the Thursday after expiration - then the stock can be a marvelous call write in the current (front) month.

That exception I mentioned: if earnings are due the week of expiration and I have three weeks or more before expiration, I may nevertheless write the stock OTM, intending to close the position early at a profit.

Click the E link in the EARN DATE column on the list to get the earnings report date.

Industry Performance

What's better than a stock showing me a bullish setup? Why, a stock whose industry peers likewise seem to be finding support at the same time. Rising tide, remember? This is easy to find out with a few mouse clicks:

1. Open the Research Page; it doesn't matter how.
   
2. Click the Ind. Rank link in the Research Matrix, which opens finviz.com.
   
3. Next, enter the stock's symbol on the finviz.com page, which opens a chart for the stock.
   
4. Below the chart, click on the stock's industry (not the sector), which opens a page for the industry.
   
5. In the horizontal row of links above the table of industry stocks, click the Charts link to open charts for all stocks in the industry.
   
6. Visually scan the charts to see if major stocks in the industry also are finding support.

Not sure which stocks are the major stocks? Use your back button to get the table of industry stocks again and arrange them by market cap. You'll quickly see which are the big dogs.

Let's see, it's a great company (if not, why are you looking at it?), the stock appears to be turning up, alpha stocks in the industry also are turning up... I think we may just have a trade! If other industry-group stocks are not also turning up, the stock's recovery may not have as much steam.

Have you ever heard the CNBC pundits say something like, "Well, [fellow taling head], what's going on with the steels? They seem to have a new lease on life!"  This means the steels have already done just what I am describing above, and CNBC finally is noticing. This how to notice it early.

Volatilities

I put the 10-, 30- and 60-day historical volatilities on the lists. These numbers, expressed as percentages, allow you to see how volatile a stock normally is and whether volatility is flat, increasing or decreasing. Notice how low the volatilities are on the Global Select (Dividends) list compared to those on other other lists?

Implied volatility tells us how volatile the stock would have to be in order to produce the actual stock premium that we see. Suppose you have two $25 stocks, both with about a 40% historical volatility. One stock's current $25 Call has an implied volatility of 44%, which is slightly higher than the 40% historical volatility but essentially in line with it. The other stock's $25 Call has an implied volatility of 85%! All things being equal, we rationally would write the call with the lower implied volatility, even though premium will be lower.

Why? Wall Street does not give money away, and too-high implied volatility signals that some event is pending. That event could rock the stock, and the direction might be down. Covered calls and naked puts are not the weapons of choice for trading such a potentiall volatile stock.

What is out of line? More than 25% or 10 points is getting a little dicey. High-IV stocks can be written, but you MUST know what the event is and when it is coming. And this can be a lot harder to find out than you think. I'm lazy, so I just avoid these out-of-line situations. But what if you CAN find the event and the date? If it is in the next expiration month it is fairly safe to write this month, assuming the chart and other factors do not scare you away.

Oh, I found yet another $25 stock, whose $25 Call also has an implied volatility of 85%. But the stock itself has a volatility of 90%! Thus implied volatility, though admittedly high, is not out of line with the stock's volatility. It is just a volatile stock, and the call price reflects that.

The historical volatilities appear right on our lists. Open an implied volatility chart by clicking the IV link on any list.

Which Strike?

Bullish setups were meant to be written out of the money (OTM). By doing so - although, to be sure, you get less premium and therefore less downside protection - an OTM call gives you the advantages of:

• Low delta, meaning that the call will gain value very slowly as the stock rises, making a profitably early close easy to do, and
• All time value, meaning that even if the stock doesn't rise much, time decay in the call premium will make it possible to close early for a profit.

Obviously, you can write them ATM or ITM, as well, assuming premium is acceptable to you. Of course, ATM calls are all time value, too, but don't offer as low a delta. I just like having the option to close the trade early for a profit, which is easiest of all with an OTM strike, and very difficult with an ITM strike.

I like to write calls that are three weeks or more from expiration. This gives the stock time to rise. If the OTM premium is not worth the while, but I am really short-term bullish on the stock, I may leg in, meaning to buy the stock and write the call after the stock has risen (or just sell the stock).

For you naked put writers, consider writing an ATM put. The put will lose value fast on a stock rise, due to falling delta, enabling a profitable early close. Those who are more adventurous may consider an ITM put, which will lose value even faster on a stock rise. Belt-and-suspenders put writers can always go with the OTM put, which (at least statistically) offers the best chance of the put expiring worthless.

The call symbol link on the list will open up a covered call chain, which shows you at a glance how much return the different strikes offer. The put symbol link on the naked put lists, similarly, opens up a naked put chain.

What about Fundamentals??

If you are not on the Global Select (Dividends) list, and maybe even if you are, it is necessary to get a picture of the stock's fundamental soundness before putting on a trade. There is no secret sauce here. Click the Fundamentals link in the Research Page Matrix and look price ratios, profitability and such. A company that consistently grows earnings is best, and bigger is better for covered calls and naked puts.