How to Search for Weekly and Daily (0DTE) Covered Calls
Jesse Anderson
Most covered call investors focus on monthly call options since they’re a good balance between a little extra income and the time it takes to find and execute trades. That said, weekly – or even daily – covered calls can certainly generate more income if you’re willing to put in the time.
In this article, you’ll learn why weekly and daily (0DTE) covered calls could offer more income potential and how to search for and capitalize on the best opportunities.
Why Use Short-term Covered Calls?
Covered calls generate value through time decay. Ultimately, you want to maximize the rate at which an option loses value since you can sell the option for a high price and the odds of it ever being exercised quickly diminishes. And, not surprisingly, shorter-dated options have faster time decay than longer-dated options since there’s less time for the price to move higher or lower.
Note: The final week of a monthly covered call has the same time decay as a weekly covered call because it has the same amount of time remaining in the option. So, you may want to consider using a monthly covered call during the final week if there are lower transaction costs.
You could sell one monthly covered call or four weekly covered calls over the same timeframe, assuming you have a set amount of capital. Since weekly covered calls have faster time decay, all other factors being equal, you could generate a little more income from four weekly covered calls compared to one monthly covered call, making them more attractive to income investors.
Daily covered calls amplify these dynamics even further. While they are closer to day trading than income investing, they could provide the most income potential for traders willing to spend time in front of a computer monitoring positions throughout the day. In theory, you could write more than 20 covered call positions in a single month! Daily options are still very new to the market. Right now, just a few of the major ETFs have options expiring every day. However, due to their popularity, it is reasonable to expect more securities to have options with daily expirations in the future. The market often refers to these options as Zero Days to Expriation (0DTE) options.
Differences with Monthly Covered Calls
Weekly and daily covered calls operate the same as monthly covered calls – just in a shorter time frame. Monthly options expire every month on the third Friday of the month, whereas weekly options expire almost every Friday and are issued on Thursdays. However, there are a few differences and caveats to keep in mind when using weekly or daily options.
Some of the most noteworthy differences includes:
- Fewer Securities – Weekly and daily options aren’t offered on as many securities as monthly options. As a result, you may not be able to use weekly options if you’re writing covered calls on an existing stock portfolio that you want to hold long-term.
- Cheaper Prices – Weekly and daily options have less time duration, making them less costly than monthly options for buyers – and less lucrative for sellers. However, you can make up for these cheaper prices by writing more options over a given timeframe.
- Higher Costs – Weekly and daily options are less popular than monthly options, which means they typically have a higher bid/ask spread and lower liquidity. These higher transaction costs can make it challenging to roll or exit positions. Also, commissions are still a consideration with option trading. Most brokers charge $0 on stock trades but still have a per contract charge. When trading more often, it is important to keep these costs at a minimum.
- Safety – Monthly covered calls typically command a greater premium since there’s more time value, and this can create a greater margin of safety. On the other hand, less time duration gives you less wriggle room for sudden price movements.
- Time Requirements – Selling four weekly covered calls involves four times as much research and effort than selling a single monthly covered call. And writing 20+ daily covered calls requires even more time.
- Flexibility – Weekly or daily covered calls can help you avoid volatile time periods, such as earnings dates, by simply not trading on those weeks.
When it comes to choosing a strike price, there’s little difference between weeklies and monthlies. You can still choose to write deep out-of-the-money calls to avoid assignment or choose at-the-money calls to maximize income. However, weekly and daily options will need to be closer to the market price to earn enough premium to cover the higher transaction costs.
Finding Weekly & Daily Covered Calls
Covered call screeners are the easiest way to find opportunities, but few search for weekly or daily covered calls. So, if you want to trade these shorter-term options, you may have to seek out a covered call screener built to find these types of options.
optionDash is an excellent choice featuring all expirations including daily and weekly covered calls and unique research tools. For example, you can see your downside protection, if-called return, and annualized return in a single dashboard. You can also see upcoming earnings and ex-dividend dates to avoid any surprises when holding covered call positions during these volatile periods.
In addition to these metrics, you may want to pay especially close attention to the open interest in weekly and daily covered calls. Securities without much open interest may have high bid/ask spreads that make covered call positions uneconomical.
While fundamental analysis isn’t particularly relevant for short-term covered calls, 0ptionDash provides information you can use to tilt the odds in your favor. For instance, the seasonality tool lets you see a stock’s historical performance during certain months, which could indicate its likely future performance during those months.
Finally, 0ptionDash goes above and beyond by making it easy to build watchlists and access community research. You can also find related cash-secured put opportunities (including daily and weekly put options). These can help when implementing an option wheel strategy or when trying to use options as a means to acquire a long stock position.
The Bottom Line
Covered calls are an excellent way to generate extra income from a long stock portfolio. While most investors stick with monthly call options, daily (0DTE) and weekly call options could provide an opportunity to boost income even more. While these are a viable strategy for many active traders, there are some caveats and drawbacks to consider before using them.
If you’re just getting started with covered calls, try our free e-course to learn the basics of stock and option selection, portfolio management, and how to handle unexpected turns. Or, if you’re interested in a more hands-off solution, contact us to learn more about our asset management services aimed at helping you boost your income.
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