Weekly credit spreads use options with the same expiration date but different strike prices.
In a call credit spread, you sell a lower strike call and buy a higher strike call, while in a bull put credit spread, you sell a higher strike put and buy a lower strike put.
The aim is for both options to expire worthless, letting you keep the net credit as profit. So what are some good stocks for weekly credit spreads to achieve this? Let’s take a look.
Best Stocks For Weekly Credit Spreads (Verified List)
Entergy Corporation (NYSE: ETR)
Entergy Corporation is an American energy firm primarily operating within the electric power sector.
Based in New Orleans, Louisiana, the company serves almost 3 million clients across Arkansas, Mississippi, and Texas.
The company generates, transmits, distributes, and sells electricity to residential, commercial, and industrial customers, with Louisiana customers receiving natural gas distribution services.
Entergy operates power generation facilities, including nuclear, gas, coal, oil, and hydroelectric stations. It owns and manages a distribution network extending over 113,000 miles and a transmission network covering over 15,000 miles.
Being a solid establishment, Entergy is an excellent option for weekly credit spreads. The company has a market cap of $23.54 billion and is coming off the back of a $13.76 billion revenue in 2022.
More importantly, the stock has low volatility, which reduces the chances of an option being exercised or assigned.
This means there is a higher probability of an option expiring worthless which works great for a weekly credit spread strategy.
We can measure the volatility of a stock with its implied volatility. An implied volatility score below 50% reflects low volatility.
ETR has an implied volatility of 24.3% and a beta of 0.63, making a solid underlying security for traders to pick their entry and exit points with better predictability.
Chevron Corporation (NYSE: CVX)
One of the most integrated energy companies in the world, Chevron Corporation is active in all facets of the oil, gas, and geothermal sectors.
The American multinational energy corporation portfolio includes diverse assets, including onshore and offshore oil and gas fields, refineries, petrochemical plants, and fuel distribution networks.
There’s no hiding that Chevron operates in a highly volatile oil and gas industry whose financial performance is heavily influenced by oil and gas prices.
Still, the company has a low implied volatility of 27.2% and a beta of 1.15, which determines how closely a stock option follows the market.
It also boasts a relatively low debt-to-equity ratio, giving it the flexibility to make investments and pursue growth opportunities.
Chevron’s market cap is $319.65 billion, and it earned $244.30 billion last year. Its share price roughly trades at $167 as of early April 2023.
McDonald’s Corporation (NYSE: MCD)
We can’t talk about credit spread strategy without the company that provides consumers with a good dining table spread.
McDonald’s Corporation is an American fast-food chain best known for its burgers, fries, and other menu items.
Its menu includes burgers, chicken sandwiches, salads, breakfast items, and desserts. The company is also known for its numerous popular promotions.
In addition to its core menu items, McDonald’s has been investing in new menu innovations, such as plant-based meat alternatives and custom-built burgers, to meet changing consumer tastes and preferences.
This innovation shows the company’s ability to diversify, grow and keep a steady financial performance. All qualities of an outstanding weekly credit spread stock.
McDonald’s is a solid financial performer. It made a revenue of $23.18 billion in 2022 and has a market cap of $206.93 billion.
Even more appealing is its predictability and stability. The company has an implied volatility of 18.9% and a stock beta of 0.62%.
As of early April 2023, MCD is trading at roughly $280 per share.
The Procter & Gamble Company (NYSE: PG)
The Procter & Gamble Company is a great blue chip stock for many strategies, and the weekly credit spread is no different.
It is a multinational consumer goods corporation headquartered in Cincinnati, Ohio.
A highly diversified entity, the company produces and markets various consumer products, including household and personal care products, such as Tide laundry detergent, Crest toothpaste, and Gillette razors.
The company’s portfolio includes pet food and snacks like Iams and Eukanuba.
Various factors, including changes in consumer preferences, competition from other consumer goods companies, and fluctuations in commodity prices, influence P&G’s financial performance.
The company has high liquidity and low volatility, two primary benchmarks for choosing weekly credit spread options. It has an implied volatility of 18.3% and a stock beta of 0.39.
Procter & Gamble’s stability is also illustrated by its 66 years of dividend growth. It has a market cap of $359.11 billion, and its whole enterprise is valued at $388.24 billion.
Merck & Co. Inc. (NYSE: MRK)
Based in New Jersey, USA, Merck & Co., Inc., commonly known as Merck, is a global pharmaceutical company.
Merck develops, manufactures, and markets various prescription medicines, vaccines, and animal health products that treat different medical conditions like cancer, diabetes, cardiovascular disease, infectious diseases, and animal health.
The company boasts a strong research and development program and invests heavily in developing new drugs and treatments.
It also has several collaborations and partnerships with other pharmaceutical companies and academic institutions to advance research in critical areas.
Merck operates in an industry that is not overly volatile or susceptible to sudden price drops. It has an implied volatility of 24.5% and a stock beta of 0.35.
The company also has strong financials, recording consistent revenue growth at a rate of 21.72%.
It also records 12 years of dividend growth at a current yield of 2.60%.
Merck has a large market cap of $285.16 billion. Its share price stood at roughly $112 as of early April 2023, with analysts expecting healthy performance in light of the recent FDA approval of its combination treatment for bladder cancer.
The Travelers Companies Inc. (NYSE: TRV)
The Travelers Companies Inc. is an American insurance company founded in 1853 and is today one of the world’s largest property and casualty insurance companies.
The Travelers Companies, through its subsidiaries, offers a wide range of insurance products, including auto, home, and business insurance.
The company also provides insurance for specialty areas such as aerospace, energy, and construction.
The Travelers Companies strongly focuses on risk management and leverages technology and data analytics to help its customers manage risks and prevent losses.
The company also provides risk management services and consulting to world-leading businesses and organizations.
In 2022, the insurance company generated $36.88 billion and was set for an over 10% earnings growth this year.
The Travelers Companies’ capital position and liquidity remain strong amidst the global financial market disruptions.
In fact, it currently has an implied volatility of 26.3% and a stock beta of 0.63, assuring stability to its investors.
As of early April 2023, its stocks sold for roughly $170 on the NYSE.
The Coca-Cola Company (NYSE: KO)
Led by its world-renowned and much-beloved flagship products, the Coca-Cola company is no stranger to the weekly credit spread options strategy.
The company offers a range of non-alcoholic beverages, including carbonated soft drinks, energy drinks, juices, and sports drinks.
Its famous brands include Coca-Cola, Sprite, Fanta, Minute Maid, Powerade, and Dasani.
Its diversified product line, which includes a range of products from soft drinks to juices, sports drinks, and even water, helps reduce the impact of market volatility on the company’s overall performance.
One of the most well-known brands in the world, Coca-Cola has a long track record of success in the beverage sector.
It has outstanding financials reporting year-over-year revenue growth of upwards of 11%.
Its market cap currently stands at $271.87 billion, and its 60 years of consistent dividend growth provide stability and predictability to investors.
KO is an established brand with a high trading volume and open interest in its options contracts, ensuring sufficient liquidity for traders to enter and exit trades at favorable prices.
The company ranks in the sixth percentile for implied volatility, with an implied volatility of 16.6% — the lowest on our list. It also has a stock beta of 0.73.
Mondelez International, Inc. (NASDAQ: MDLZ)
Another established brand, Mondelez International Inc., is a multinational food and beverage company that was established in 2012 after a split from Kraft Foods.
The Chicago-based company operates in over 80 countries and sells its products in more than 150 countries across the globe.
Mondelez International’s product portfolio includes Oreo, Ritz, CLIF Bar, and Tate’s Bake Shop biscuits.
It also includes baked snacks and Cadbury Dairy Milk, Milka, and Toblerone chocolate.
The company, valued at $118.58 billion, has a market cap of $96.85 billion and 12 years of consistent dividend growth.
In 2022, it raised $31.50 billion, with experts estimating an 8.5% increase this year.
Mondelez International, Inc. offers weekly options with consistent expiration dates, making planning and executing credit spread trades easier.
Like Coca-Cola, the options contracts on Mondelez International, Inc. have high trading volume and open interest, meaning sufficient liquidity exists to enter and exit trades at favorable prices.
MDLZ is less likely to experience significant price swings, making managing the risk of credit spread easier. It has an implied volatility of 20.4%, placing it in the 17th percentile.
Mondelez International also records a stock beta of 0.66. Its share price was about $70 on NASDAQ as of early April 2023, an almost 8% increase from the previous month.
Are Stocks For Weekly Credit Spreads a Good Investment?
Investing in best stocks for weekly credit spreads can be an effective strategy for bagging a solid income while minimizing your downside risk.
By taking advantage of stocks with favorable implied volatility, optimal strike prices, and same expiration dates, investors can execute bull put credit spreads.
This involves selling a higher strike put option and buying a lower strike put option, allowing investors to receive a net credit upfront.
The strategy clearly defines maximum profit and loss, providing more control over the investment.
As a result, stocks for weekly credit spreads can offer investors a steady income stream, diversification, and a risk-managed approach to trading in the stock market.
FAQs
What Is The Best Time Frame For Credit Spreads?
The optimal time for weekly credit spreads is usually 1-3 weeks until expiration, allowing investors to capitalize on rapid time decay while minimizing capital exposure.
What Increases Credit Spreads?
Some factors that increase credit spreads include heightened perceived credit risk, rising interest rates, economic uncertainty, market volatility, and changes in credit ratings.
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