Best Stocks Under $50 to Sell Covered Calls On for Monthly Income

The Short Answer: What Makes a Sub-$50 Stock Good for Covered Calls?

The best stocks under $50 to sell covered calls on are liquid, optionable names with enough implied volatility to generate meaningful premium — but not so much volatility that assignment risk becomes a constant headache. Think stocks with average daily option volume above 1,000 contracts, a tight bid-ask spread on the options chain, and a business you are comfortable holding for months if the market turns against you.

Price alone does not make a stock good for covered calls. A $12 stock with almost no options activity will pay you pennies and trap you in wide spreads. The sweet spot in the under-$50 range includes mid-cap and large-cap names that have simply pulled back in price, plus a handful of ETFs and sector leaders that trade in this range by design. The examples below focus on names retail traders can realistically own 100 shares of — the minimum lot required to write one covered call contract.

Why the Under-$50 Price Point Matters for Retail Traders

Selling a covered call requires owning 100 shares of the underlying stock. At $50 per share, that is a $5,000 position — manageable for most self-directed accounts. Compare that to selling a covered call on a $400 stock, which ties up $40,000 in a single position. Lower share prices let you diversify across three, four, or five different names for the same capital outlay.

The Options Industry Council (OIC) notes that covered calls are one of the most conservative options strategies available, but concentration risk is real. Spreading $15,000 across three $50 stocks is safer than putting it all in one $150 stock, even if the premium percentages look similar. Smaller position sizes also make it easier to manage assignment — if your shares get called away, you are not suddenly sitting on a large cash balance with no plan.

For Canadian investors, the Canada Revenue Agency (CRA) treats covered call premiums as either capital gains or income depending on your trading frequency and intent. If you are writing calls regularly in a non-registered account, CRA may classify the premiums as business income. Check with a tax professional before scaling up.

What to Look for Before You Pick a Stock

Run every candidate through these four filters before you write a single contract.

**1. Open interest and volume.** Look for at least 500 open interest on the strike you plan to sell. Thin options markets mean wide bid-ask spreads, and you will give up a large chunk of your premium just getting filled. FINRA reminds retail traders that transaction costs — including the hidden cost of a wide spread — erode returns over time.

**2. Implied volatility (IV).** Higher IV means higher premium. A stock with 30-day IV around 30–50% will pay noticeably more than a stock at 15% IV. You can check IV rank and IV percentile on most broker platforms. The CBOE publishes volatility indexes for major sectors that help you benchmark whether a stock's IV is elevated or depressed relative to its own history.

**3. Earnings dates.** Implied volatility spikes before earnings and collapses after — a phenomenon traders call the IV crush. Selling a covered call right before an earnings report can look attractive because the premium is high, but the stock can gap down 10–15% overnight, leaving you holding a losing position with a now-worthless call that did not protect you enough. Many covered-call writers avoid holding through earnings or close the position beforehand.

**4. Your willingness to own the stock long-term.** The SEC's investor education materials are clear: covered calls do not eliminate downside risk. If the stock drops from $45 to $30, your $1.20 premium does not come close to covering that loss. Only sell covered calls on stocks you genuinely want to hold.

Worked Example: Selling a Covered Call on Ford (F) Around $12

Ford Motor Company (F) regularly trades in the $10–$14 range, making it one of the most-traded covered-call candidates under $50. Here is a realistic example using round numbers close to recent market conditions.

**Setup:** You own 100 shares of F at $12.00 per share. Total cost basis: $1,200.

**The call you sell:** You sell one F call option with a $13 strike expiring in approximately 30 days. The bid-ask on that contract is $0.28 / $0.32. You get filled at $0.30, collecting $30 in premium (100 shares × $0.30).

**Annualized yield check:** $0.30 premium on a $12.00 stock = 2.5% for one month. Multiply by 12 and you get roughly 30% annualized — though in practice you will not hit the same premium every month, and some months you will need to manage the position rather than simply roll it.

**Three outcomes at expiration:** - F closes below $13: The call expires worthless. You keep the $30 premium and still own your 100 shares. You can sell another call next month. - F closes exactly at $13: Same result — the call expires worthless or is exercised right at the strike. You keep the premium. - F closes above $13 (say, $14): Your shares are called away at $13. You receive $1,300 for the shares plus keep the $30 premium — a total of $1,330 on a $1,200 investment, a 10.8% return. The downside is you miss the extra $1 per share of upside above $13.

**Why F works here:** Ford options have high daily volume, open interest in the thousands on near-the-money strikes, and IV that tends to run in the 35–55% range. The bid-ask spread on liquid strikes is typically $0.01–$0.03 wide, so you are not losing much to slippage.

Other Liquid Names Under $50 Worth Watching

The list below is not a buy recommendation. It is a starting point for your own research. Prices shift — always verify current quotes before trading.

**Bank of America (BAC) — typically $30–$40.** One of the most liquid bank stocks in the US options market. High open interest across multiple expirations. IV tends to pick up around Federal Reserve announcements, which can boost premium.

**Palantir (PLTR) — often $15–$30.** Higher implied volatility than most financials, which means fatter premiums. The trade-off is more price swings. Suitable for traders who want more income and can stomach larger short-term moves.

**Vale S.A. (VALE) — typically $10–$16.** A Brazilian mining company with ADRs that trade on the NYSE. Decent options liquidity and IV that responds to commodity price moves. Good for diversifying away from pure US equity exposure.

**SPDR S&P 500 ETF (SPY) — note: SPY trades above $50 most of the time, but mini-options and micro-contracts exist.** If you want broad market exposure with the tightest bid-ask spreads in the options world, SPY is the benchmark. The CBOE lists SPY options as among the highest-volume contracts globally. When SPY dips into a lower price range, or if you are using a fractional-share broker that supports options, it is worth knowing.

**Sirius XM (SIRI) — typically $3–$7.** Very low share price means you need to check that premium in dollar terms is worth your time. At $0.05 per contract, you are collecting $5 per covered call — barely worth the commission. Only consider very low-priced stocks if the IV is extremely high and the premium in dollar terms clears at least $0.20–$0.30 per share.

The pattern is clear: prioritize liquidity and IV over share price alone.

The Real Risks — Read This Before You Trade

Covered calls are not a free lunch. Here are the three risks that trip up new traders most often.

**Downside is not capped.** Your maximum loss on a covered call position is still nearly the full value of the stock. If you buy 100 shares of a $45 stock and collect $1.50 in premium, your break-even is $43.50. If the stock falls to $30, you have lost $13.50 per share — the $1.50 premium barely dents that. The OIC's educational materials emphasize this point: covered calls reduce cost basis slightly, they do not protect against large drops.

**You cap your upside.** If the stock you own runs from $45 to $60, you only participate up to your strike price (say, $47). You collect the premium and the $2 of stock appreciation to the strike, but you miss the rest. In a strong bull market, this can feel painful.

**Early assignment.** American-style options — which is what most US-listed stock options are — can be exercised by the buyer at any time before expiration. If your stock pays a dividend and the call is in-the-money, the buyer may exercise early to capture the dividend. The OIC explains this dynamic in detail in its covered call module. Always check the ex-dividend date before selling a call.

**Tax treatment.** In the US, the IRS has specific rules about how covered call premiums interact with the holding period of your underlying shares. Writing a deep in-the-money call can suspend the long-term capital gains clock on your stock. IRS Publication 550 covers investment income and expenses, including options. In Canada, CRA's IT-479R bulletin addresses securities transactions. Neither tax authority makes this simple — consult a qualified tax advisor.

How to Size Your Positions and Build a Covered-Call Portfolio

A practical rule used by many income-focused traders: no single covered-call position should represent more than 20–25% of your total options portfolio. If you have $20,000 allocated to covered calls, that means no more than $4,000–$5,000 in any one stock.

For stocks under $50, that translates to roughly 100 shares per position — one contract per name. Start with two or three names, get comfortable with the mechanics of rolling and managing assignment, then expand.

Rolling is the practice of buying back your existing call before expiration and selling a new one at a later date or higher strike. You roll when the stock has moved up toward your strike and you want to avoid assignment, or when you want to extend your income stream. Most brokers let you do this as a single spread order, which reduces execution risk.

Finally, keep a cash reserve. If one of your positions gets assigned and your shares are called away, you want dry powder to buy back in — or to pivot to a different stock — without scrambling.

What is the minimum number of shares I need to sell a covered call?

You need to own at least 100 shares of the underlying stock to sell one standard covered call contract in the US and Canadian markets. Each standard options contract represents 100 shares. If you own fewer than 100 shares, you cannot write a covered call on that position.

How much premium can I realistically earn selling covered calls on stocks under $50?

On a liquid $15–$45 stock with moderate implied volatility, a 30-day at-the-money covered call typically pays 1–4% of the stock's price in premium. That works out to roughly $15–$60 per contract per month on a $1,500–$4,500 position. Actual results vary widely based on implied volatility, time to expiration, and how close the strike is to the current price.

Can I sell covered calls in a Roth IRA or TFSA?

Yes. The IRS allows covered calls in IRAs, including Roth IRAs, because the strategy is considered conservative — you already own the underlying shares. In Canada, the CRA permits covered calls inside a Tax-Free Savings Account (TFSA) as long as the activity is not considered a business. Check with your broker to confirm your account is approved for options trading at the appropriate level.

What happens if my stock gets called away before I want to sell it?

If the buyer exercises the call and your shares are assigned, you are obligated to sell 100 shares at the strike price regardless of where the stock is trading. You keep the premium you collected, and the sale proceeds go into your account. You can then decide whether to buy the shares back at the current market price or move on to a different position.

Is it better to sell weekly or monthly covered calls on cheap stocks?

Monthly (30-day) expirations are generally recommended for beginners because they require less active management and the premium per trade is larger in dollar terms. Weekly options decay faster, which sounds attractive, but the premium per contract is smaller and you spend more time and commissions managing the position. The CBOE offers weeklies on many popular stocks if you want to experiment after you are comfortable with the basics.

How do I know if a stock's options are liquid enough to trade?

Check the bid-ask spread on the strike you plan to sell — a spread of $0.05 or less is ideal, and anything over $0.15 on a sub-$50 stock should give you pause. Also look at open interest: 500 or more contracts on your target strike is a reasonable minimum. FINRA and the OIC both highlight liquidity as a key factor in options trading costs for retail investors.