Nvidia, AMD highlight BofA's list of covered call options plays
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Chip stocks look attractive to BofA's options analysts for those looking to boost returns on current holdings.
"The strategy is best suited for names the call seller has a neutral short-term view on, as a call sells the right to upside participation beyond the call strike for a fee," BofA equity-linked analysts led by Gonzalo Asis explained. "Covered call writing is not a hedge and maintains full downside risk."
"While covered call strategies will underperform stocks in fast bull markets, they will still realize significant profits," he added. "Covered call strategies tend to outperform outright stock ownership in flat, down and slightly up markets."
BofA looks at 5,000 overwriting positions in the Russell 1000 (NYSEARCA:IWF) with March 18 expiration.
Their 10 candidates "allow at least 8% potential gain by 18-Mar-2022, earn a minimum premium of 6%, and have underlying notional option volume of at least $5mn."
The 10 stocks are:

Devon Energy (NYSE:DVN), strike price $55, call and dividend premium 7.6%, call-away return 10.9%
Dick's Sporting Goods (NYSE:DKS), $120, 6.1%, 9.8%
Gap (NYSE:GPS), $18, 7.7%, 9.5%
Exact Sciences (EXAC), $77.50, 6.7%, 8.9%
Advanced Micro Devices (NASDAQ:AMD), $125, 6.7%, $8.5%
APA (NASDAQ:APA), $35, 7.8%, 8.5%
Marvell Technology (NASDAQ:MRVL), $75, 7.3%, 8.5%
Mercado Libre (NASDAQ:MELI), $1090, 7.6%, 8.3%
Nvidia (NASDAQ:NVDA), $255, 7.2%, 8.2%
Ford Motor (NYSE:F), $21, 6.3%, 8.1%


SA contributor Jonathan Weber recently advised against adding to NVDA positions with headwinds like higher rates and less demand for crypto mining.