Kevin, More important than picking the right stock to do a covered call on is having a solid trading plan. I assume you do. Make sure you know how you will time your entry, when you will take your profit and when you will pull the plug and exit the trade if it goes bad. I prefer ETFs for many of the reasons already listed. Find ones that have a good trend and offer options with enough open interest so you get good fill prices. If you want to trade covered calls on stocks, just make sure the volume of the stock and the options are sufficient to indicate a fair amount of liquidity. I find stocks and ETFs that meet that criteria tend to respect basic technical analysis notions like support, resistance and moving averages.
I have traded covered calls many times in the past and I think it is not a very good strategy for somebody to do. Simply for the reason because most of the time you end up losing your good stocks (getting called away ) and keeping the crappie stocks which are not getting called away they just go down in value. Most of the brokers would tell you this is a good strategy to earn some extra money (they have no clue) -Good luck and be careful (let me know if I can help you)
I think that's what they call choosing the wrong strike price! Deeper in the money for the crappy stocks, farther out of the money for the keepers.
Solution: Don't buy crappy stocks. Stick with ones paying consistent, ever-increasing div's--the companies are out there..I named a couple.
KevinO, You have a laudable goal, but you are swinging for the fence rather than being satisfied with a double. The higher rate of return you seek, the higher the risk. You want to make a BIG rate of return? Do some covered calls on a biotech with an upcoming FDA decision. Oh, did I mention that the stock might crash and burn instead? Look at PARD fairly recently for an example. I buy stocks that I feel secure in holding if the stock or the market turns down. I suggest you do the same. How about 1.5-2.0% per month consistently? What's wrong with 18-24% annual return? Finally, DIVERSIFY. The stock you're going to make it BIG, BIG, BIG on might just be the one that goes bust and stays there for months. Then where are you?
You might look at doing ratio Collars / Fences. This helps in both generating static yields and can also give you positive /negative delta bias. Of course - as with anything you have to be right - however a ratio limits maximum risk and also increases reward profiles.