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protective puts and covered call writing

Generating Income on Stocks Already Owned

Covered call writing is a low-risk option-selling strategy that allows us to generate monthly cash flow in sheltered and non-sheltered accounts. One of the main reasons this has been the go-to strategy in the stock portion of my portfolio is related to the fact that the strategy can be crafted to specific investment scenarios and […]

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calculating covered call writing returns

Rolling Options Using the Ellman Calculator

Covered call writing and put-selling are strategies that require us to master three skills: stock selection, option selection and position management or the use of exit strategies. One of the exit strategies available to us as expiration approaches is rolling options where the near-month option is closed (buy-to-close) and the next month’s option is sold […]

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Ask Alan

Ask Alan #125 – “When stock price rises but call value declines”

Alan answers a question posed by Antonio, who asks: “Alan When I sell an option prior to an earnings report expecting a favorable report, I anticipate that stock and option value will increase. However, frequently stock price will rise while option value will decline. Please help me understand why this occurs. Thanks, Antonio”. ——— It’s […]

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Protective Puts and Earnings Reports

Never sell a covered call or a cash-secured put if there is an upcoming earnings report. I will continue to repeat this mandate to ensure that new members will not suffer the financial fallout from a disappointing earnings report. There are times, however, when we have so much confidence in a stock which has historically beaten consensus […]

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Alan Ellman article

Setting the 20%/10% Guidelines After Rolling out-And-Up

Exit strategies for covered call writing are critical to the ultimate success we achieve when selling covered call options or cash-secured puts. One of the prime strategies associated with covered call writing when share price declines is the 20%/10% guideline. This strategy guides us when to close our short options position if share price declines […]

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fundamental analysis for option-selling

GAAP versus Non-GAAP Earnings: Challenges of Fundamental Analysis

Fundamental analysis is the first step when screening stocks for covered call writing and put-selling. Years ago I actually read the financial statements of companies I was interested in.  I eventually came to the conclusion that this was an exercise in futility as it was time-consuming and, in many cases, difficult to confirm the accuracy of […]

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Why and When We are NOT Losing Money If We Buy Back an Option for More Money than We Received

Exit strategies for covered call writing and selling cash-secured puts all start with buying back the option. Frequently, the cost to close our short option positions will be less than the premium generated initially from the option sale. This is because of the impact Theta (time value erosion) has on our option premiums. However, students […]

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The Relationship Between Delta and the Time Value of our Options

Covered call writers and put-sellers are always looking for an edge. Some may wonder which option Delta would make the best option-selling candidate. Intuitively or from experience we know that at-the-money strikes (Deltas near 0.50) generate the highest initial returns. I’ve stated that over-and-over again in my books and DVDs. Can this be demonstrated mathematically […]

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selling cash-secured puts

Rolling Up When Selling Puts To Buy A Stock At A Discount

Selling out-of-the-money cash-secured puts is a fantastic way to buy a stock at a discount. It can be used in lieu of setting limit orders. If exercised, our cost basis is the put strike minus the put premium generated. If unexercised, we get paid not to buy the stock! For example, if a stock is […]

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covered call writing and put-selling in bear markets

Why We Should Avoid ATM and ITM Put Strikes in Bear Markets + A Discussion of Brexit

“Selling cash-secured puts is the exact same strategy as covered call writing”. We hear that over and over…except that it’s not. These two strategies have the same risk/reward profiles and that is why the claim is made so frequently. On page 214 of my book, Selling Cash-Secured Puts, I highlight a comparison chart showing similarities […]

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