beginners corner

Blog

actively-managed mutual funds versus Index Funds

Indexing: A Key Component to Successful Long-Term Investing

In my book, Stock Investing for Students, I develop a long-term investment plan to achieve financial independence and an early retirement. The plan is initiated by using broad market index funds. This article will highlight the reasons why I favor passively-managed mutual funds to their actively-managed counterparts. First, some definitions.   Definitions Index fund: A type […]

19 Comments Continue Reading →
is covered call writing a zero sum game

Is Covered Call Writing a Zero Sum Game? Let’s Do the Math

Many assume that covered call writing is a zero sum game because we have traders executing equal but opposite trades using the same underlying security. As a covered call writer, we may sell 5 contracts of AAPL which means there is a buyer out there who just bought our contracts. If we win, they lose and […]

46 Comments Continue Reading →

Ask Alan #134 – “Why did my sell-stop stock order go through?”

Alan answers a question posed by Dave, who asks: If I sell six $80.00 puts on a stock currently trading at $74.64 for $5.00, it will most likely get exercised. Have I got it right that in order to benefit from this trade, the stock must move above $80.00? Thanks for your help.” ——— It’s […]

6 Comments Continue Reading →
covered call writing and put-selling

Should We Favor Put-Selling Over Covered Call Writing?

Many consider covered call writing and selling cash-secured puts the same strategy with the same risk-reward profiles. To me, they are similar with slight differences that must be understood to make a decision as to which strategy to favor. In the end, it will be like selecting between an ice cream sunday topped with whipped […]

37 Comments Continue Reading →

Calculations When an Unexpected Earnings Report is about to be Released

Never write a covered call or sell a cash-secured put if there is an earnings announcement due prior to contract expiration. This is such an important rule in the BCI methodology. However, we all know that life is not perfect and sometimes we are thrown the proverbial “curve ball” Earnings reports come out every quarter or […]

39 Comments Continue Reading →
covered call writing and stock dividends

Covered Calls and Dividends: A Proposed Strategy

Covered call writers must factor in dividends into our investment strategies. More specifically, ex-dividend dates for these are the dates shareholders must own the shares to benefit from the dividend distribution. Call buyers must exercise the option prior to the ex-date to capture the forthcoming dividend. This makes our shares subject to early exercise (exercise […]

40 Comments Continue Reading →
implied volatil;ity and standard deviation

Probability Analysis when Using Covered Call Writing or Selling Cash-Secured Puts

Whether we are selling covered calls or cash-secured puts we frequently look to our broker platforms for ways of enhancing our trading success. As these platforms become more sophisticated and competitive, there are a myriad of software analytical programs offered including those geared to probability analysis. A typical program will use implied volatility stats to determine […]

22 Comments Continue Reading →
covered call writing with Mini options

Mini Options for Equities and Exchange-Traded Funds: A Failing Product

Standard covered call writing contracts consists of 100 shares deliverable. When we sell one standard covered call contract we are agreeing to sell (deliver) 100 shares. Since many retail investors lack the capital to first buy 100 shares of expensive underlying securities or even the options themselves, new products known as mini options were created. […]

36 Comments Continue Reading →
best stocks for covered call writing

When Do We Keep a Stock that has Declined in Value?

The BCI methodology requires fundamental analysis, technical analysis and common sense screening (like minimum trading volume and avoiding earnings reports). One of the most difficult decisions retail investors face is when to sell a stock that has depreciated in value. We all deal with such decisions every contract month no matter how rigorous a screening process we […]

24 Comments Continue Reading →