According to Janus Henderson, the options market is currently presenting a unique opportunity for investors to generate higher income from individual stocks. Despite overall market volatility being low, individual stocks have shown substantial price fluctuations, with some large companies experiencing daily swings of 10% to 20% without any earnings announcements.
This disparity has led to higher premiums for selling call options on individual stocks compared to the broader index. Portfolio manager Jeremiah Buckley notes that this trend is partly driven by thematic trading and the popularity of single-stock exchange-traded funds, which have intensified movements in specific companies.
As a result, active managers can adopt a covered-call strategy that allows them to collect premiums while retaining potential upside in their holdings. This flexibility enables them to adjust their strategies based on market conditions, such as reducing call writing on stocks that are rallying while capitalizing on premiums from stocks nearing their fair value.
Buckley emphasizes that focusing on single-stock volatility is crucial for maximizing option income, suggesting that a uniform approach based on index volatility may overlook valuable opportunities