Constructing Your Covered Call Writing Portfolio During Earnings Season

by: Alan Ellman

From mid-January to mid-February many of our watch list stocks will be reporting earnings rendering these equities ineligible for covered call writing at least until after the report is announced (if you subscribe to my methodology). This does NOT mean that our money will stay on the sidelines for a month (unless market conditions dictate this action). Blue Collar Investors are great people but very tough “bosses”. As CEOs of our own money we are quite demanding: No time off, no vacation days, no sick days for our cash! We put our hard-earned money into the greatest performing equities in the greatest performing industries and send them out into the “financial battlefield” and ask them to come home with “friends”.

Earnings season (the month following the end of each quarter: January, April, July or October) is when most corporate entities publicize these reports. Since our system requires us to avoid selling options when a company is about to report, there may be a problem locating enough securities for our covered call portfolios. Let’s look at a sample of a recent premium watch list which we refer to as the “running list” because it is constantly being re-screened and updated:

Premium Running List

We highlight in gold background all equities that are reporting earnings in the current contract cycle. These stocks are NOT eligible for covered call writing until after the report is made public. Four times a year, or one third of our contract opportunities, 50-70% of our watch list may contain equities that report in that cycle. Whenever Blue Collar Investors are faced with a challenge, we address it and then solve it. That being said, expect slightly lower returns in these months. Here is how Blue Collar Investors attack this issue and render it a non-event:

1- Check the stocks that ARE eligible and determine whether there are enough equities for our portfolio size that are well-diversified by industry segment. If there are, you’re good to go. If not, you can start to invest with these stocks and leave cash on the sidelines for the next entry point.

2- You will note that there are many stocks that report early in the cycle. Allow the ER to pass and re-check our system criteria. Once the post-ER dust settles and if the stocks are eligible, we can enter those positions. ***Some cycles last 5 weeks so entering in the second week or the start of the third should still generate favorable returns.

3- If the first two strategies fall short and you still need more “security-power” to write your calls, why not turn to exchange-traded funds for our covered call writing? These are mutual funds that behave like stocks and represent a “basket” of equities so there is instant diversification and earnings reports are no longer a concern. The BCI Corp. also produces a weekly 6-page report of top-performing ETFs suitable for covered call writing. Here is a partial sample of a recent report:

Premium ETF Report

All exchange-traded funds listed in the report have outperformed the S&P 500 (black) over the past three months as of that post. These would be CC candidates to consider if you couldn’t locate enough individual equities to populate your portfolio. These are also appropriate for more conservative investors and those with limited time to devote to this strategy. Although many of the stocks within these ETFs do report, the fact that we are dealing with such a large basket of securities, the ER issue becomes much less of a concern as they tend to counterbalance each other.


During the four earnings seasons, we must avoid selling calls on stocks that report in the current cycle, prior to those reports. In these instances, we look to candidates not reporting in the current cycle, wait for reports to pass and then enter into those positions and consider selling calls on the best-performing ETFs. Problem solved.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.