Comments on: How to Generate 10% Per Year in Bear Markets by Selling Stock Options https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/ Learn how to invest by selling stock options. Wed, 22 Jul 2015 15:21:26 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23666 Wed, 22 Jul 2015 15:21:26 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23666 In reply to Nate.

Nate,

Very impressive! Great questions:

1- Yes, same guidelines but at this point selling the security is also in play.

2- Yes again. If you tweek the strategy due to extreme market conditions we also tweek the percentages as you suggest to protect ourselves on the downside.

Keep up the good work.

Alan

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By: Nate https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23662 Wed, 22 Jul 2015 05:05:14 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23662 In reply to Alan Ellman.

Alan,
I actually did all three of those exit strategies this past month. They really helped mitigate losses. I even hit my first double which was with TASR. I was still down for the month but it could have been much worse. I learned a lot dealing with a sagging market. Next time I feel I’ll be better prepared.

2 QUESTIONS.
I rolled down twice on CYBR. It hit the 20% rule so I bought it back, I let it recover a bit then rolled down to a lower strike. Then I let it hit the 10% guidline on the new strike so I bought it back. It recovered a bit then I just got out of the position. (Earnings coming up + under performer) I had two contracts so I did something a little different with the other one.

Q1: When rolling down for a second time do you stick to the same 20/10% guideline as I did?

Q2: When selling cash-secured puts, related to this article, at 1% in a down market do you still stick to the same 3% below strike exit strategy or do you exit at 1% below? This question comes from the idea that since the normal target is 2-4% and 3% is the average target so if we lower the profit target do we also needed to lower the exit percentage points?

Thanks for all you do!
Nate

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By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23628 Thu, 16 Jul 2015 17:35:54 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23628 In reply to Steve.

Steve,

You’re right about this being unusual. Some reasons why it may occur:

1- Investor error

2- Concern that if share price is near the strike, it may move to at-the-money slightly after 4PM on expiration Friday and subject to exercise. We can only trade up to 4PM ET but settlement may occur slightly after 4PM…see “pinning the strike” in my material.

3- Concern about share decline over the weekend may result in lower next month premiums for the same strike.

Generally the best approach for strikes out-of-the-money on expiration Friday is to allow the option to expire worthless and write a new call on Monday or early in the first week of the next contract…one less commission.

Alan

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By: Steve https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23627 Thu, 16 Jul 2015 17:28:17 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23627 Alan,

Let’s say your stock did not reach its strike price on expiration. I notice some call writers buy the calls back for a nickel and write a new call for the following month. I don’t understand why they buy back the call when it will expire.

Thanks.
Steve

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By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23625 Wed, 15 Jul 2015 21:24:06 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23625 Premium members:

This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates.

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:

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Alan and the BCI team

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By: Nate https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23623 Wed, 15 Jul 2015 04:33:11 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23623 In reply to Jay.

Jay, your credit spread seems like an interesting idea for me to try out. I have been enjoying covered calls and consider the BCI method my main strategy. I am always open to learning and exploring new ideas however. I looked into your credit spread and looks like it is called a short strangle (sell strangle). I can see how this works out for you. My question is: on the rare occasions where R2 is crossed and a loss is beginning to occur what exit strategy do you have in place? Thanks for sharing your experiencewith us.

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By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-generate-10-per-year-in-bear-markets-by-selling-stock-options/#comment-23619 Tue, 14 Jul 2015 15:46:19 +0000 http://www.thebluecollarinvestor.com/?p=12480#comment-23619 In reply to Anton.

Anton,

Take a look at the timing of exit strategy executions. This is critical in down markets. Rolling down, selling stocks under-performing and re-selling same strike options is what will mitigate losses and sometimes turn losses into gains. Position management is just as importasnt as stock and option selection.

The last 3 trading days have not hurt either.

Alan

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