Best Stocks for Covered Call Writing: What 40 Backtests Show

The best stocks for covered call writing are stocks you would hold anyway that tend to drift or chop rather than rally hard. Premium size matters less than what the stock does after you sell the call. In a simulated two-year backtest on 40 stocks and ETFs, selling options beat holding the shares on 12 of the 18 tickers whose price rose less than 30%. It beat holding on only 1 of the 12 tickers whose price rose more than 60%.

The test is a wheel backtest: cash-secured puts first, then covered calls on the assigned shares. Every ticker uses modelled option pricing, so treat it as a simulation, not a record of live trades.

How the backtest was run

One recipe, applied the same way to every ticker:

• Calls: sell a 35 DTE covered call, 2% out of the money, and hold it to expiry.
• Entry: shares come from selling a 35 DTE cash-secured put, 2% out of the money, and taking assignment.
• Management: no rolling, no early close.
• Window: 2024-09-20 to 2026-09-18, about 728 days.
• Universe: 40 stocks and ETFs that passed the engine's publication checks.

"Called away" below is the share of covered call cycles that ended with the shares called away. The median across all 40 tickers was 50%: in a typical name, every second call cost you the shares.

Covered calls work best on flat or falling stocks

These are the tickers where selling options finished furthest ahead of holding the shares:

Most of the list is stocks that went sideways or lower: PG, TLT, COST and XLP. On those, the premium is most of the return. TSLA is the exception: its shares rose 52.9%, yet selling options returned 97.1%. A volatile stock can work when it swings both ways rather than trending up, but that is hard to know in advance.

The pattern is the textbook case for covered calls. When the stock does nothing, you get paid for waiting. When it falls, the premium cushions the loss.

Covered calls hurt on the biggest rallies

These are the tickers where selling options fell furthest behind holding the shares:

A 2% out-of-the-money call caps each month's gain at about 2% plus the premium. When a stock gains 100% or more in two years, those caps add up to a large shortfall. The shares get called away, and you buy back in higher or sell puts below a rising market.

So high implied volatility on its own is not a buy signal for covered calls. Semiconductors and gold miners paid rich premiums in this window and still lagged far behind the shares.

Low-drawdown names: the steady middle

Ten tickers had a maximum drawdown under 20% with options sold. These are the calmest rides in the test:

Four of these finished close to buy-and-hold: KO, DIA, XLI and XOM landed within a few points. On SPY, the calls gave up 14.9 points in a strong market. If a smooth equity curve matters more to you than the last few points of return, this is the group to start with.

A checklist for picking covered call stocks

Turn the backtest into a screen you can run on any ticker:

1. Would you hold it through a 20% drop? Covered calls do not protect the downside beyond the premium. UNH lost 23.6% with options sold, against 34.5% for holding it. The calls helped, but you still lost money.
2. What do you expect it to do over the next few months? If you expect a big move up, do not sell calls close to the money. The AMD and gold-miner rows show the cost.
3. Is it liquid enough? Tight bid-ask spreads on monthly options matter more than headline premium.
4. How often will you lose the shares? Call-away rates ran from 20% (KO) to 100% (JPM, XLE, XLU). Every call-away is a taxable sale and a new entry decision. The covered call calculator shows the return if called away before you place the trade.
5. Can you track the real result? Premium, called-away shares and repurchases need to add up to one number per position. Otherwise you cannot tell whether the calls beat the stock. Your true cost basis after rolls is where that starts.

For the put side of the same trade, see the best stocks for cash-secured puts. For names that suit both legs, see the best wheel strategy stocks.

Limits of this backtest

• It is the wheel, not pure covered calls. Shares were acquired through put assignment, so entry prices differ from simply buying the stock on day one.
• One recipe. 35 DTE and 2% out of the money, held to expiry. Further OTM calls give up less upside and collect less premium. Rolling changes every number.
• One window. These two years had large rallies in semiconductors and precious metals. A different period would rank the tickers differently.
• Modelled pricing. Option prices were modelled for all 40 tickers. Real fills, commissions and early assignment would move the results.

The full 40-ticker table, including assignment rates on the put side, is in the wheel backtest vs buy-and-hold write-up.

FAQ

What are the best stocks for covered call writing?

Stocks you are happy to own that are more likely to drift or chop than to rally hard. In Days to Expiry's simulated two-year backtest (35 DTE, 2% OTM, held to expiry), selling options beat holding the shares on 12 of 18 tickers whose share price rose less than 30%, and on only 1 of 12 tickers whose share price rose more than 60%.

Are high-volatility stocks good for covered calls?

They pay the most premium, but they also run through the strike most often. In the backtest, AMD returned 92.0% with options sold against it while the shares returned 259.0%. NVDA returned 94.2% against 91.6% for the shares. High premium only pays when the stock does not keep rallying.

Are ETFs good for covered calls?

Broad ETFs had some of the smallest drawdowns in the backtest: DIA 15.4%, SPY 14.7% and XLP 8.5%. Their premiums are lower, but so is the damage on a bad month. XLP finished at 12.6% against -0.3% for holding it.

How was this covered call backtest run?

Days to Expiry's backtest engine ran the wheel on 40 stocks and ETFs from 2024-09-20 to 2026-09-18: sell a 35 DTE put 2% out of the money, take assignment, then sell 35 DTE covered calls 2% out of the money, holding every option to expiry. Option pricing is modelled for all 40 tickers, so these are simulated results, not live trades.