What Is ADX? Why It Matters for Covered Calls in Canada?
What Is ADX? Why It Matters in Selecting Canadian Covered Calls
If you're a Canadian investor writing covered calls, you’ve likely looked at metrics like ROO % and open interest. But one of the most overlooked indicators is ADX — the Average Directional Index.
What Is ADX?
ADX is a technical indicator that measures the strength of a trend — not the direction. It ranges from 0 to 100:
- ADX under 20: Weak trend or sideways action
- ADX 20–35: Moderate trend strength
- ADX over 35: Strong trend — upward or downward
This makes ADX extremely useful for options traders looking to decide if a stock is likely to stay flat (ideal for premium capture) or if it’s in a strong trend (which could mean higher assignment risk).
Why It’s Important for Covered Calls
Covered call writers often prefer stocks that are stable or gently trending upward. Here's how ADX helps:
- Low ADX → Good for premium collection, low movement, low assignment risk
- High ADX → Potential for rapid movement, both positive or negative — more aggressive trade
By filtering for ADX below 30, you can often find stocks that “chop sideways” — perfect for call writing.
How Optrader Helps
Optrader includes ADX filtering in its covered call screener. You can screen for:
- ADX range – Set min/max to focus on low or strong trends
- Combine with ROO % – Filter stable stocks with high premium
- AI-enhanced prediction – Use trend direction + trend strength with confidence models
Bottom Line
ADX is a must-have in your toolkit if you want to avoid volatile trades and focus on stable, profitable covered call setups. Combine it with other filters like sentiment, earnings, and ROO for the best results.
