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Exchange-Traded Funds: Funding Option-Selling Portfolios With ETFs

For the strategies of covered call writing and selling cash-secured puts, we are selling the right, but not the obligation, to buy or sell 100 shares of the underlying security. That security can be a stock or and exchange-traded fund (ETF). In this article, I will highlight ETFs and demonstrate a few approaches to funding [...]

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covered call writing and puit-selling in bear markets

Generating Profit When Share Price Declines 10% In Two Months

Can we use covered call writing and selling cash-secured puts to generate profits when share price declines by 10% in two months in a bear or volatile market environment? I am writing this article on January 5th, 2015, the worst day the market has experienced in  over three months. This hypothetical trade represents an unscientific [...]

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Covered call writing option basics

Option Prices: The Role Of Interest Rates And Dividends

Mastering options trading basics includes understanding the factors that impact our option premiums. The original Black Scholes pricing model was designed to evaluate European Style options which can only be exercised on expiration Friday, not earlier. Here is a brief summary of the factors considered in these original pricing models:   These four main factors [...]

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market volatility and option-selling decisions

Covered Combinations: Merging Covered Call Writing and Put-Selling into One Strategy

A Covered combination (“combo trade”) trade is the simultaneous sale of an out-of-the-money (OTM) call and an out-of-the-money  put with the same expiration date on 100 shares of a stock or ETF (exchange-traded fund). It consists of a combination of a covered call and a short put position on a share-for-share basis. The investor generates two premiums from the [...]

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covered call writing calculations

Using Put-Selling To Enter A Covered Call Trade At A Discount

Combining covered call writing and selling cash-secured puts into a multi-tiered option strategy is one way to hedge against bear and volatile market environments. In my book, Selling Cash-Secured Puts, I refer to this as the PCP or put-call-put-strategy. First I will give a general overview of the strategy and then an example using specific [...]

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Ask Alan

Ask Alan #106 – Using Put Options To Buy Stocks At A “Discount”

Alan answers a question shared by Richard, who asks: “In your recent seminar in Philadelphia you briefly mentioned that you could buy a stock at a discounted price using puts. Can you give an example how to do this with one of the stocks on your premium stock list? Thanks very much.” If you want [...]

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covered call writing and put-selling inj bear markets

Comparing Covered Call Writing And Put Selling In Bear Markets

Our stock options strategies, whether writing covered calls or selling cash-secured puts (the topic on my just published book) requires us to make an overall market assessment before entering any trades. In last week’s article we evaluated bull market scenarios. In this week’s blog we will examine bear market environments. When selling covered calls we would favor in-the-money [...]

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Comparing covered call writing and selling cash-secured puts

Comparing Covered Call Writing And Put Selling In Bull Markets

Covered call writing or put-selling? In-the-money or out-of-the-money strikes? When we view an options chain there are some basic principles we must factor into our final covered call writing or put-selling decisions. First, which of these two strategies is most appropriate? Unfortunately, there is no one answer that is right for every investor. I prefer [...]

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interest rates and option premiums for covered call writing and put-selling

RHO: Why Interest Rates Effect Our Option Premiums

Interest rates and the option Greeks play an important role in understanding option trading basics. Rho, not considered a major Greek, measures the change in an option’s price resulting from a 1% change in interest rates. When interest rates do change, it is normally by 25 basis points, not a full percentage point and that’s [...]

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