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Covered Call Writing: Stock Options with Additional Expiration Months

When studying our option trading basics, we learn that most stock options have four expiration cycles. Some securities also have long-term options (LEAPS) as well as weekly and quarterly expirations. Some of our members have noticed that there are certain actively-traded securities that have additional expiration months in addition to the ones we are already familiar with. This is a result of  the Additional Expiration Months Pilot Program.

On November 1, 2010, after receiving SEC approval, the International Securities Exchange introduced additional expiration months on 20 actively-traded option classes on a pilot basis. These securities have a total of six different expiration months aside from any LEAPS series. The result will be that a selected issue will always have four consecutive near-term months as well as two more based on its expiration cycle. For example, after a November expiration, a stock on the January cycle (1st month of each quarter) would typically have expiration months available for December, January (the two near-term months); April and July (the two more from the January cycle). As a result of the Pilot Program, February and March expirations are added.

Once the December contracts expire, the October series is added as part of the January cycle (1st month in the 4th quarter) and so the available expirations would look like this (four consecutive + two more):

  • January
  • February
  • March
  • April
  • July
  • October

Below are the 20 classes selected for the pilot along with the expiration month(s) that will be added.

 

Symbol

Additional Months

AAPL

Feb, July

BAC

Aug

C

Feb

CSCO

Feb, July

EEM

Feb

F

Feb

GE

Feb

GLD

Feb

INTC

Feb, July

IWM

Aug

JPM

Feb

MSFT

Feb, July

PFE

Feb

QQQ

Feb

RIMM

Feb

SPY

Feb

T

Feb, July

VALE

Feb

VZ

Feb, July

XLF

Feb

 
Now when Blue Collar Investors view an options chain and see 6 expiration months instead of 4, we know it was selected for the Additional Expiration Months Pilot Program. In October of 2011, this pilot program was retired. I spoke with Market Data Control at the ISE and was informed that even though the pilot program has been retired the ISE still generates the additional expiration months for the original list of twenty. They do not anticipate this list to expand.
 
***Premium members: This list is archived in the “resources/downloads” section of your premium site.
 
Upcoming live events:
 
Saturday April 14th: Atlanta, Georgia
 
Tuesday May 8th: Long Island, New York
 
Details to follow.
 
Market tone:
Our economy continues to recover as reflected in this week’s economic reports and news:
  • Congress extended the payroll tax cut through 2012
  • Congress also extended emergency unemployment benefits
  • The Conference Board announced its 4th consecutive increase in the index of leading economic indicators and the December reading was raised as well
  • Retail sales in January rose by 0.4%, less than expected
  • Industrial production in January was flat, less than expected but November and December had upward revisions while February reports showed solid gains
  • Jobless claims came in @ 348,000, less than anticipated
  • Home construction was up in January as was the number of construction permits

For the week, the S&P 500 rose by 1.4% for a year-to-date return of 8.6% including dividends.

In the past six months the market has been trending up and the VIX or volatility index has been reflecting investor confidence. The chart below clearly reflects both technical positives for our stock market:
 

Market tone 2-17-12

—————————————————————————————————————————————————-
 Summary:
 
IBD: Confirmed uptrend
 
BCI: Moderately bullish selling an equal number of ITM and OTM strikes
 
————————————————————————————————————————————————-
 
Much success to all,
 
 
 
 

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

42 Responses to “Covered Call Writing: Stock Options with Additional Expiration Months”

  1. Barry B February 18, 2012 5:58 pm #

    Premium Members,

    The Weekly Report for 02-17-12 has been uploaded to the Premium Member website and is available for download.

    Best,

    Barry and The BCI Team

  2. Fran February 19, 2012 4:04 am #

    Alan,

    Is there a list that will tell us which expiration cycle (Jan. Feb or March) a stock is assigned to?

    Thanks.

    Fran

    • Alan Ellman February 19, 2012 7:38 am #

      Fran,

      I am not aware of any one resource that lists the expiration cycle of all securities. One way to determine the specific cycle for a specific security is to access the options chain and look to the third available expiration month. If it’s in the first month of the quarter it’s in the January cycle and so on. If it’s one of the 20 securities listed in this article you will have to go to the 5th month out because all 20 have 4 near-term choices.

      There is, however, one list that exists that defines the cycle for all securities that have LEAPS options associated with them. This is a long list but is NOT all-inclusive. Here’s how to access this list:

      Expiration Cycles For Stocks With LEAPS

      How to locate

      http://www.optionseducation.org

      • Trading tools

      • Market data

      • Product specifications

      • LEAPS

      • Complete LEAPS

      Alan

  3. Alan Ellman February 19, 2012 7:32 am #

    Premium members:

    Two more flow charts have been added to your premium site. These relate to exit strategy execution. For those new to the BCI methodology you may want to print these out and use them as reference guides until you’ve mastered exit strategy execution…it won’t take long. Look in the “resources/downloads” section and scroll down to “Flow Charts….”.

    Alan

  4. Steve Z February 19, 2012 11:02 am #

    Alan, I know your POV about CCs on high volatility stocks/companies and as a conservative investor I completely agree with you. Having said that, have you given much thought to CCs on the VXX ETN?

    I ask because I’m wondering if CCs on it it are conceptually different than CCs on a high volatility company. With a company, its stock price can go down and never come back up. However, the VXX has a -0.88 correlation with the S&P. As long as the S&P goes up and down, the VXX will go up and down also. Assuming one believes the S&P will go up and down, then one “has” to believe the VXX will too. And it is this “certainty” of going up and down that makes it conceptually different from a high volatility company stock.

    If you buy into this so far, then the VIX and therefore VXX are near historic lows. Because of the assumptions in the previous paragraph, we don’t know when but we “know” it has to go up at some point. Between now and then, whenever then is, one could use an overwrite strategy and sell OTM calls at excellent ROOs, month after month and wait. Specifically, one can go 5-6 strikes OTM, which is well below the 50% Fib line and still have an ROO of about 4% and a total potential of over 20%. The high volatility monthly option premiums plus the “certain” eventual appreciation to the OTM call would seem to be a “sure thing” with an eye-popping return for a covered call.

    However, “sure things” never are and since it seems way too good to be true, my thinking must be flawed so I’m curious where. Thoughts?

    Steve

    • Alan Ellman February 19, 2012 5:08 pm #

      Steve,

      You present a lucid and interesting concept and I appreciate your sharing it with us. The facts you present are hard to argue: the market will continue to go up and down as will VXX. The VIX (and thus VXX) is absolutely near historic lows and option returns, even well OTM calls, are fabulous. Whenever I come up with an idea that appears “too good to be true” I look for flaws before jumping in. A few things that come to mind:

      1- Owning VXX and owning a stock is similar in that we don’t want them to go down in value. The risk in that regard is similar.

      2- The high implied volatility of the VXX options as well as equity options means that the market is anticipating a large degree of short-term price change IN EITHER DIRECTION. IV does not define direction.

      3- The high IV of these options tells us that investors are taking BOTH sides of the trade as with all options. Some expect large price movement up, some down.

      4- Although VXX is near historic lows, this security over the past year has traded lower than its current market value more than 25% of the time. See the chart below between the red lines.

      5- A great case can be made for a pull back in the market especially with European debt still an issue, concerns with Iran and a myriad of other potential tail risk factors. This WOULD result in a rising VIX and VXX, a positive for your hypothetical. However, there are still trillions of investment dollars on the sidelines. What if Europe calms down, Iran behaves itself, our economy continues to improve with unemployment down and housing up? Could the VIX drop below 10?

      6- What about looking at ITM strikes for additional protection? For example, the $24 call will generate > 3% with good protection. Not the bonanza you were alluding to but not bad.

      Consider these points food for thought. Examining hypotheticals like this one is interesting and will make us all better investors. Here’s the chart:

      Alan

      • Steve Z February 20, 2012 4:39 pm #

        Alan, thanks for the detailed response. My big picture takeaway from your points 1-5 is to be very aware that the price can go down from where it is and it could stay down for awhile. The reason I think I’m comfortable with this is I think I don’t care how far down it goes nor how long it stays there. As long as one can keep rolling OTM to a 3-4% ROO every month, then the 2-4% monthly objective is achieved and it doesn’t really matter how long the price stays down since we know it eventually “has” to come back up. It seems to me that the key to this concept is the belief that it “has” to come back up and the timing doesn’t matter.

        Also, just for fun look at the complete VXX options chain for March. Look at how much OI there is on the “5s”, 45, 50, & 55. There is another slug at 59, which was the October high and another group at 100 which is both the highest available, a round number, and near the 262% fib level. Interesting…

        Steve

        • lawrence February 22, 2012 8:49 pm #

          Hi

          May I know what is fib level? Thanks

          Lawrence

          • Alan Ellman February 22, 2012 9:32 pm
            #

            Lawrence,

            It is a technical analysis tool: Fibonacci Retracements are used to estimate likely reversal points during an up- or down-trend. It is a reversal alert zone. Other technical signals are needed to confirm a reversal. Fibonacci Retracement is setup by drawing two lines at the extremes of a channel of interest. The vertical space (price) is divided by the following percentages derived from the Fibonacci sequence: 23.6%, 38.2%, 50%, 61.8%, 78.6%, & 100%. These lines represent potential lines of resistance or support where price may pullback or retrace from a localized trend. In effect, they tend to be decision points where price may pause before continuing, reversing or stalling. This is one of many outstanding technical analysis tools but not incorporated into the BCI methodology.

            Alan

          • Steve Z February 22, 2012 9:37 pm
            #

            Lawrence, good question. Sorry for the short-hand. I forget that not everyone has done much studying about investing. A fib level is short-hand for Fibonacci Retracements.

            If you’ve never read about Fibonacci numbers it’s really interesting. Here’s the Wiki link: http://en.wikipedia.org/wiki/Fibonacci_number. The occurrence of the Fibonacci ratios in nature is fascinating.

            What is then even more mysterious to me is the fact that the “zigzag” pattern of stock prices follow the Fibonacci numbers and are called retracements in investing. Some price patterns use the Fibonacci retracement levels so precisely as support & resistance, that it seems almost eerie. Consequently, they are used by every investor who uses technical analysis for support & resistance, along with moving averages and horizontal & diagonal support & resistance lines. Here’s the Investopedia link to get you started. http://www.investopedia.com/terms/f/fibonacciretracement.asp#axzz1nAPbl2N2.

            Just as an example, I took the SPY and drew a “fib” from the low of 3 years ago to the high of a few weeks ago. Look how many times the “Fib Lines” were at points of support & resistance. Eerie!

            Steve

          • Alan Ellman February 22, 2012 9:43 pm
            #

            Members:

            Click on Steve’s chart (great example!) to enlarge and use the back arrow to return to this blog).

            Alan

  5. Nick February 19, 2012 11:52 am #

    Alan,

    I’m in the process of reading your latest book for the second time. It has given me the confidence that I can successfully invest in the stock market on my own. This is something I never would have considered in the past.

    My question is about the 2-4 percent monthly goals you write about. If you are selling mostly in the money options because of market concern does this range change or lower? I would think so since the time value is less.

    Thanks for all you do for us.

    Nick

    • owencpa February 19, 2012 1:02 pm #

      Nick,

      Your question is very astute. Yes, the return is going to be reduced on in the money calls, but you may still get around 2% for more volatile stocks. Several stocks which qualify for the Blue Collar covered calls this week are Teradata (TDC) and Chipotle Mexican Grill (CMG).

      If you can invest $38,470 in CMG ($384.70 as of Friday’s close), you have the choice of the selling the $380 cqll for $12.70. After we adjust the intrinsic value we have an $800 return on a $38,000 investment. That gives you a 2.11% return for this trade.

      TDC, on the other hand, is a lower priced, and less volatile stock. If you buy 100 shares for $6,263, and sell the $60 call for $3.50 you will wind up with ONLY a 1.45% return, FOR A MONTH!

      The point of the capital letters is that there are people out there who would fall all over themselves moving money into a bank that offered 1.45% a YEAR.

      So, Nick, don’t get tied up in trying to get 2-4%. Pick securities which can give you the diversity that will help reduce your risk. Then pick options which will give you a risk level you feel comfortable with. The return should be your last coice in selecting an option. It is far better to only get 1% per month, with less risk, than to chase a 2% return where you are more likely to wind up with the same 1% return, or worse, a loss.

      • Nick February 19, 2012 3:56 pm #

        Owen,

        I really appreciate your detailed response. Everything you said makes good sense. BWLD is another good choice where the 85 call returns 2.5% with good protection. I’m going to run the numbers on some of the other choices on the list.

        Thanks again Owen.

        Nick

  6. DougM February 19, 2012 2:03 pm #

    Alan,

    Briefly, while it’s good to have the explanation for why we’ll occasionally stumble across stocks with these extra months, is there any way it affects our strategy, since we only work with current month options?

    And I don’t recall, but did you ever do an article on weekly options? It would seem that those might offer us some relevent extra opportunities.

    Thanks,
    Doug

    • Alan Ellman February 19, 2012 2:29 pm #

      Doug,

      The article was inspired by several inquiries from our members. As a matter of fact I put on hold an article I previously prepared to post this one because in the past week I had a few members inquire about this. Although most of our members do fully subscribe to the BCI methodology of selling 1-month calls, some members sell longer term options and we want to respond to those needs as well. I also believe strongly that we should all be as educated as possible to maximize our investing skills.

      Adding weeklys to the BCI methodology is something my team and I are exploring and considering adding later this year. We’ve had several inquiries on this subject as well.

      As far as your picture is concerned, I’ll ask my webmaster and post how to get into the smaller box rather than the superstar placement you presently reside in. Who knows, maybe Hollywood will call!

      Thanks for the feedback and suggestions.

      Alan

  7. DougM February 19, 2012 2:09 pm #

    He he, didn’t expect that poster sized photo to result from the option of adding an image that is now provided. I guess that is for charts ‘n such. How does one add a little thumbnail photo above your name, like Alan has?

  8. David D February 19, 2012 4:45 pm #

    Hi Alan and fellow investors…

    With last friday being expiration friday, I expected two of my stocks to be called away as the stock price was way lower than the strike price…

    Instead, both those stocks are still sitting in my brokerage account… I dont know why this is as I have always had the stock sold automatically by now…

    Is there a logical reason for this?

    To tell you the truth, if these stocks were to stay in my account it would make a nice addition, but I hope it doesnt as it would be a little unproffessional from a brokerage perspective…

    Happy investing for 2012!!

    Dave

  9. DougM February 19, 2012 6:18 pm #

    Hi Dave,

    You’re looking for the opposite to occur. Stocks get called away only when their price exceeds that of the strike. That’s the only condition where the buyer will profit. Your situation is ideal if the price is not far below strike, so that you can just sell more calls at the same strike. Of course you need to check for earnings announcements and other criteria to decide whether to keep them.

    Hope I saved the principals some typing here.

    – Doug

  10. JR February 20, 2012 4:58 am #

    Alan and the BCI team. Here is a interesting concept I ran across at the recent Florida Money Show, It is getting weekly income WITHOUT using the weekly options.

    This was presented by a well known timing service and I am wondering if there is any merit to this strategy. To lay some foundation to this and the best I can recall is:

    1) Portfolio of about 100,000.00 for diversification.
    2) Each Friday you sell a call option on a stock that pays a dividend of at least 4% and meet the criteria. (In our model, it would be passing all the BCI requirements.
    3) By selling one security each Friday you will get a decent paycheck weekly.
    4) The option that needs to be considered along with the dividend is that it should be 1 strike out of the money (or in the money) depending on the market conditions.
    5) The strike needs to go out at least 3 months (to get a decent premium) Ex: Sell in March, with a Expiration in May etc.
    6) Each Friday you repeat this process until 10-13 positions are in place. The rinse and repeat. I have 13 positions because I beleive there are 13 weeks in 3 month periods.
    7) The service provided have had this model for 2 years and has averaged about 700-800 dollars per week and a profit each year of over 30%.
    8) Again kept for three months to get the extra dividend boost.

    My concern would be the earnings reports and when they come due. I guess you can work around that with so many opportunities out there.

    Any thoughts on this strategy?

    JR

    • Steve Z February 20, 2012 1:05 pm #

      JR, I’ll be curious to see Alan’s take on this. My first reaction is to keep in mind that Alan’s strategy is 2-4% per month so 6-12% per quarter. A 4% annual dividend is 1% per quarter. That’s a nice addition but probably not a driver for stock selection especially given the next point. The next point is that solid dividend paying stocks tend to have low volatility so lower premiums. This means they are less likely to deliver the 2-4% per month return. And few of the “solid” dividend payers make Alan & Barry’s list with PM (now gone) and INTC being the recent exceptions.

      Having said that, I do think a very legitimate source of investment diversification is to own a solid set of dividend-paying stocks over the long-term and write covered calls on them. Just don’t expect to get the same 2-4%/month overall returns. 1% up to maybe 2%/mo is a more reasonable expectation.

      Steve

    • DougM February 20, 2012 2:13 pm #

      Comprehensive reply will take some doing. Initial thoughts are: 1) one 3mo option yields less than three 1mo options, 2) dividends are good, but they reduce the size of option premium, all else being equal, 3) “weekly paycheck” sounds handy, but is irrelevent to return, 4) 13 week laddering is an attractive sounding diversification over time. Don’t go all in just as the market sours. But 13 weeks is also a long committment. Lot of damage in normal corrections. 5) $750/week, non-compounded is more like 39% per year. In their portfolio, did they ever pick a stock that went down in price? Was that factored into returns? Would need to see performance in down times.

      Just first thoughts out loud. Not to be a stick in the mud, but questions to be asked. As with all covered call strategies, the most important element is stock selection to avoid those that go down in price. I gather that this is the primary service that they provide, but which is left a mystery.

    • Alan Ellman February 20, 2012 5:17 pm #

      JR,

      In my view, the best way to determine the value of an investment strategy is to fully educate yourself in all aspects and then paper trade for an appropriate time frame, usually several months. That being said, I do have some initial thoughts in addition to and some similar to the outstanding commentary by Steve and Doug:

      1- My initial overall reaction is that this approach takes a relatively simple strategy and complicates it exponentially.

      2- By requiring our cc candidates to have a minimum of a 4% dividend (I’d like to see a max dividend yield as well…too high could mean a decelerating share price) our pool of candidates will be dramatically diminished or our fundamental and technical requirements watered down.

      3- Holding a stock in a covered call position through a dividend distribution will normally mean holding it through an earnings report as well. This would be a BIG mistake. To circumvent, the option could be rolled prior to the report but now our obligation is even greater than 3 months perhaps on an equity that doesn’t deserve that type of commitment.

      4- A 4% dividend yield is an annual yield; 1% for the quarter, one third of 1% for the month. Furthermore, when a dividend is distributed the price of the stock oftentimes declines by the dividend amount. Should we be ignoring better-performing securities in favor of a (yawn) 0.3% dividend? If, however, one of those great performers also generate a dividend, even better…we’ll take it. But I would be careful about making my stock selections mainly based on dividend yield.

      5- No mention of exit strategies except in your comment # 12 where you allude to a 10% stop-loss on the stock. That’s it on exit strategies? Our BCI ES arsenal is a lot better equipped than that AND SHOULD BE!

      6- Was there any discussion of early assignment of the option? If the time value of the option premium is < the dividend about to be distributed and if the option delta is above 0.95, there is a good chance that your shares will be sold and no dividend captured. 7- Weekly income seems to be stressed here. Why? When we use the BCI methodology all premiums are collected at the beginning of the contract cycle and can be immediately re-invested at a higher rate than any dividend distribution. More money quicker that can be compounded sooner. 8- Selling options each week will put us in multiple positions in multiple time frames requiring more intensive monitoring and as I said initially seemingly complicating a rather simple strategy. 9- 3-month expirations will generate a much lower return than 1-month options. 10- A 30% return is possible with cc writing but NOT without sophisticated exit strategy management. That much I can say without paper trading. (Feel like I just completed a term paper!). Now based on these initial thoughts it would appear that I am skeptical and I am. But let me go back to my original premise that to really know the value of a strategy one must fully educate himself and then paper trade. I hope you find my thoughts useful in the educational aspect of evaluating this approach. These ideas should not eliminate this strategy from your consideration but rather strengthen the basis for your analysis. If you decide to pursue it, let us know your conclusions. Alan

  11. Dave D February 20, 2012 7:50 am #

    Oops, just realixed my typo… Ment stock price way above strike price…

    Yep, so am still waiting for stock to be sold as its still in my account…

    Golly gumbdrops this is my lucky day! LOL

    :)

    • Alan Ellman February 20, 2012 8:14 am #

      Dave,

      Please let us know tomorrow if the shares remained in your account. This would be a shocking oversight by the Options Clearing Corp. The only time this has happened to me was when the stock price was above the strike by a few pennies and this occured a long time ago.

      Good luck.

      Alan

  12. JR February 20, 2012 3:15 pm #

    Guys thanks for your thoughts on the Weekly Paycheck. . Well the presenter did say with the weekly paycheck that 2008 was not a good year if they had tried this. So they have I believe a 10% stop on their stocks. I did see a few of the stocks they mentioned and I do not believe that they would have made the BCI lists.

    My thought was avoiding the dividend restrictions and just using the best BCI stocks each week, Selling the one that fits your criteria and then holding it three months. If they have a divdend then fine I will take it.

    In this way after 12-13 weeks you have only 1 stock to consider closing out or rolling over instead of a handful at expiration that you have to deal with and as a member mentioned you have your stocks diversified and at differnet time frames dependng on the market outlook.

    Just food for thought. It seems to me a easier approach to managing a large portfolio. But who says “easier” is the best way.

    JR

  13. JR February 20, 2012 6:03 pm #

    Alan, great advice as usual. You are a true master of Covered calls and you educate us every time you post. Thanks for the feedback and I will continue to educate myself in this process.

    JR

  14. Steve Z February 21, 2012 7:13 am #

    Alan, just an FYI for your webmaster. I’ve been getting an email notification of all the comments posted — except yours.

    • Alan Ellman February 21, 2012 2:27 pm #

      Steve,

      Hmmmm….wondering if he’s trying to tell me something…..

      I’ve passed this information on to my webmaster and should get it resolved shortly. Thanks so much for letting me know.

      Alan

      • Steve Z February 21, 2012 2:37 pm #

        Interesting. I didn’t get a single email notification of any of your postings under this article until this one but I did get this one. I can’t explain it, I just report it…

  15. Peter February 21, 2012 8:14 am #

    Allan,

    In your article you state that BCI is “moderately bullish”. Is this based on the chart you showed or do you consider additional factors? If so, which ones. Thanks.

    Peter

    • Alan Ellman February 21, 2012 2:36 pm #

      Peter,

      I read the economic reports each week and publish an overview in my weekly blog articles. I also view the technicals of the charts of the S&P 500 along with the VIX and make my assessment. It’s based on a mosaic of those three parameters. We seem to have overcome the fears about Europe, corporate earnings are strong and fair value of the overall market is about 1500 based on a tradional PE of 14-15. That along with the fact that bonds can’t beat even our low inflation rate and real estate still hasn’t taken off, stocks seem to be our best choice. Throw in trillions of investment dollars still on the sidelines and this investor is moderately bullish. The uptrend isn’t guaranteed but that’s my outlook today.

      Alan

  16. Fran February 22, 2012 8:05 am #

    Alan,

    In your books and DVDs you say that you also invest in bonds and real estate. With the bond market returning next to nothing and real estate still depressed do you move mainly into stocks or do you stick to your formula? Love the new site.

    Fran

    • Alan Ellman February 22, 2012 6:25 pm #

      Fran,

      I am a big believer in diversification. You see it in the BCI methodology with stocks, industries and cash allocation. I also believe in diversifying my entire portfolio which has a significant real estate presence as well as bonds and cash equivalents. My favorite strategy, by far, is covered call writing but the others will always have a presence in my overall portfolio.

      Alan

  17. Alan Ellman February 23, 2012 3:03 pm #

    Mid-contract unwind exit strategy:

    Many of the stocks on our premium watch list have been very strong recently. When this occurs, particularly early in the contract month, seasoned BCIs think of the “mid-contract unwind” exit strategy where we take advantage of an opportunity to generate a second income stream in the SAME month with the SAME cash (see pages 264 – 271 of “Encyclopedia….”).

    For those who sold ITM strikes you may be extremely close to these opportunities despite the fact that there is three weeks remaining in the cycle. Here are a few of the stocks where this may apply:

    EXXI
    ALXN
    BWLD
    CSTR
    MLNX
    TPX

    Don’t let an opportunity pass you by. Five minutes on the computer can lead to hundreds or thousands of dollars.

    Alan

    • Alan Ellman February 24, 2012 10:36 am #

      Members:

      This is a followup to the comment I posted yesterday related to the mid-contract unwind exit strategy. This morning I noticed that TPX was up another $1 so I checked the options chain to find that the March $70 call was trading near parity (almost all intrinsic value). I decided to unwind my position as follows:

      BTC 3 x March 70 calls @ $8.40

      Sell 300 TPX @ $78.05

      Net debit = $0.35/70 = .5% or one half of 1 percent. That freed up $21,000 cash to re-invest and set up another income stream in the SAME month with the SAME cash (less 1/2 of 1%). If I can generate more than .5% by expiration Friday I will have enhanced my monthly return. With more than 3 weeks remaining this will be an easy task. This example also shows the need to always have some cash in your account to be able to take advantage of these cash-generating opportunities. Taking advantage of exit strategy opportunities is one of the traits that sets BCIs apart from all the others.

      Alan

      • Steve Z February 24, 2012 2:59 pm #

        Alan, great trade and good explanation as to why to unwind now. Tell me if I analyzed this correctly looking backward and ignoring commissions.

        TPX March 70 Unwind:

        Bought near Exp Fri, 2/17/12: stock ~$73.75, premium ~$5.75

        Sold 2/24/12: stock $78.05, premium $8.40

        Net: 78.05 – 73.75 + 5.75 – 8.40 = $1.65 so a little over 2% in 7 days so > 100% ROR annualized.

        • Alan Ellman February 24, 2012 4:50 pm #

          Steve,

          When factoring in the 0.5% debit for closing the position your stats are accurate. I had quite a response (offsite) to my posts and as a result I decided to write my next blog article detailing these trades. I’m working on it right now and expect it to be published tomorrow. This is the second week in a row that my original article got bumped!

          Alan

    • Steve Z February 24, 2012 3:47 pm #

      Alan, I know there are legal issues related with you providing any sort of recommendations. On the other hand, you are able to create things like your Watch Lists that you can provide because they are based on objective criteria and you can highlight stocks throughout the month that have had significant price moves or interesting news.

      Since you’re analyzing the same Watch List we are and doing it on about the same day (around Expiration Friday or that weekend), is there a way for you to post some tickers you’re finding interesting? These couldn’t, wouldn’t and shouldn’t be recommendations but would be ones you think are worth special consideration based on objective criteria, interesting price moves, etc. I ask because I completely missed TPX. You saw something I didn’t and for training, knowing the tickers you consider worth studying would be really helpful for our advancement as technicians.

      I’m not looking for a way for you to do something sneaky legally. Or said differently, your blog, encyclopedia, and comments have taught us how to fish and I don’t want you to give us a fish. I’m wanting to learn the subtleties of which lures to consider using in different water depths and weather conditions.

      Steve

      • Alan Ellman February 25, 2012 8:30 am #

        Steve,

        EVERY principle and paramter that I use in the stock and option selection process and management techniques have been shared with our members in my publications. I left nothing out. I selected TPX as one of the 18 securities currently in my covered call portfolio because it was on our premium watch list and met the cash allocation, return goals and diversification needs of my portfolio. These factors can differ from one investor to another. I laddered my strikes with this equity so the $70 call was not the only strike I sold. Not all our selections will be winning ones however I am convinced that by mastering the BCI methodology there will be many more winners than losers. Of course, losing positions should be managed through our exit strategy arsenal. One of the BCI mission statements is to empower our members to become CEO of their own money. My hope is that by providing the education this goal will be met by tens of thousands of Blue Collar Investors throughout the world which will then lead to our financial independence. Thanks for your understanding regarding the legal issues we must consider.

        Alan

  18. Alan Ellman February 23, 2012 6:40 pm #

    Premium members:

    This week’s 6-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site.

    For your convenience, here is the link to login to the premium site:

    http://www.thebluecollarinvestor.com/member/login.php

    Not a premium member? Check out this link:

    http://www.thebluecollarinvestor.com/membership.shtml

    Alan and the BCI team

  19. Alan Ellman February 24, 2012 6:40 am #

    Running List Stocks in the News: TPX:

    This stock from our premium watch list came to my attention the last few days:

    1- The Street Ratings (Cramer) upgraded this stock on February 22nd

    2- Oppenheimer Analysts announced a “buy” rating and a target price of $85 on February 23rd

    3- Yesterday the share price hit a new 52-week high

    TPX only has a 3% share of the total US market leaving a lot of room for improvement. Our premium report shows an industry segment rank of “B” and a beta of 1.40. In the past 5 quarters we have seen 4 positive earnings surprises ranging from 2.44% to 15.79%. The other quarter “met” expectations. See the chart below. Click on chart to enlarge and use the back arrow to return to this blog.

    Alan

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