Building a Covered Call Income Portfolio

Here's how to construct and manage a portfolio optimized for covered call income.

Portfolio Construction

Stock Selection Criteria

  • Optionable - Has listed options
  • Liquid - Tight option spreads
  • Quality - Would own without options
  • Appropriate volatility - Not too high, not too low

    • Diversification

  • 8-15 positions
  • Multiple sectors
  • Mix of volatility levels
  • Some ETFs for stability

    • Sample $100K Portfolio

    | Stock | Allocation | Monthly Target | AAPL$15K$150-225 MSFT$15K$120-180 NVDA$12K$240-360 GOOGL$12K$120-180 SPY$15K$75-120 JPM$10K$80-120 AMZN$12K$120-180 QQQ$9K$45-72 | Total | $100K | $950-1,437 |

    Target: 11-17% annual return

    Ongoing Management

  • Monthly review - Rebalance if needed
  • Roll management - Roll before expiration if profitable
  • Assignment handling - Replace called stocks or switch to puts
  • Performance tracking - Track actual returns