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Time value erosion of option premiums

Buy A Stock And Wait Before Selling The Option: Is This A Good Strategy?

The goals of covered call writing include generating monthly cash flow and preserving capital. We use every fundamental, technical and common sense principle available to maximize our profits and protect our cash. Paul A. recently sent me an excellent question that motivated this article: “…if the market has a down day and drags down the [...]

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Ask Alan

Ask Alan – The Impact Of Rolling Out On The Previous Month’s Returns

Alan answers a BCIer question by exampling the Ellman Elite 2014 Calculator. Brian asks: “When you roll out a position, you of course are buying back the call at some cost (sometimes more, sometimes less than the next month call you are selling). Your “what now” tab on the Ellman Calculator gives you some return [...]

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market assessment and covered call writing

The Role Of VIX and Market Volatility In Our Covered Call Writing Decisions

Options trading basics teaches us that the VIX or CBOE Volatility Index demonstrates the market’s expectation of 30-day volatility. It measures market risk and is also known as the investor fear gauge. With this in mind, covered call writers are faced with a dilemma. Increased market volatility will translate into higher option premiums because the [...]

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Ask Alan – Pre-Market Orders And Earnings Reports

Alan answers a question shared by William, who asks: “I did a covered call buy write with SLXP after the earnings report came out after market close on 2/27. The report was positive so I placed a pre-market trade to buy SLXP and sell the $110 strike with a limit order of $109.33. It was [...]

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Protective puts and covered call writing

Calculating Protective Puts: The Collar Strategy

Covered call exit strategies plays a major role in mitigating losses in our BCI methodology. In most cases, we can keep losses to a minimum, turn losses into gains and enhance profits as well. Some covered call writers want the security of protecting against a catastrophic gap-down which can occur rarely. This can be accomplished [...]

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Ask Alan – Calculating Returns When Selling Deep-In-The-Money Strikes

Alan answers a question shared by William, who asks: “I am trading NQ mobile at this time. I would like to know what would happen if I sold a covered call: For the Aug. $3 – the premium is $16.10, or the Sept $3 – the premium is $17.60. I own 1200 shares of NQ [...]

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Exit Strategy Calculations vs. Final Calculations

Mastering options calculations is an essential skill needed to attain the very highest covered call writing returns. Although the Ellman Calculator will do most of the heavy lifting for us, understanding the reasons behind these calculations and when and how to apply them, will make us all more skilled investors. Recently a BCI member sent [...]

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Ask Alan

Ask Alan – Holding A Stock Through Earnings: To Sell A Call or Not

Alan answers a question shared by Phil, who asks: “If you already own a stock and decide to hold it through an earnings report, why not sell the option? If it gaps down you can buy back the option at a lower price and if it gaps up you settle for the option premium which [...]

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covered call writing calulations

Option Premiums: How Intrinsic Value Protects Time Value

Meaningful option calculations are essential in determining if the premiums meet our goals. To this end, we must understand the mathematics of these calculations to become elite covered call writers. Now don’t worry…we don’t have to become Albert Einstein to be successful. But we do have to have a general understanding of the components of [...]

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Ask Alan – How Do We Calculate Upside Potential?

Alan answers a question shared by William, who asks: “I appreciate the spreadsheets you sent especially the calculator. I have pretty much figured out all of the calculations except the line-item “Your Potential Upside Return” Can you help me understand what “Your Potential Upside Return” means and how it is calculated?” If you want more [...]

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