Comments on: How To Maximize Covered Call Writing Returns By Understanding Time Value and Theta https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/ Learn how to invest by selling stock options. Wed, 10 Sep 2014 02:35:54 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/#comment-20713 Wed, 10 Sep 2014 02:35:54 +0000 http://www.thebluecollarinvestor.com/?p=10118#comment-20713 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.

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Alan and the BCI team

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By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/#comment-20693 Sun, 07 Sep 2014 12:46:10 +0000 http://www.thebluecollarinvestor.com/?p=10118#comment-20693 In reply to Barbara.

Barbara,

As you know, delta represents the rate of change of an option price for every $1 change in the price of the underlying security. If BCI was trading @ $50 and the $50 call was priced @ $2 and had a delta of 0.5, we would expect a $1 price change to $51 to result in an option value of $2.50. A price change to $49 would result in an option value of $1.50 based on a delta of 0.50.

If a trader bought 4 contracts with a delta of 0.50, he would be “long 200 deltas” (0.50 x 100 x 4). If that same trader had sold 4 contracts, he would be “short 200 deltas” Since delta is an options equivalent of a stock position, it is the same as being long or short 200 shares of the underlying.

Alan

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By: Barbara https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/#comment-20692 Sun, 07 Sep 2014 12:35:09 +0000 http://www.thebluecollarinvestor.com/?p=10118#comment-20692 Alan,

On the topic of the greeks I have a question about delta. What is meant by being “long or short a certain number of deltas” I understand what delta is but not in terms of long and short.

thank you.

Barbara

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By: Barry B https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/#comment-20682 Sat, 06 Sep 2014 20:19:44 +0000 http://www.thebluecollarinvestor.com/?p=10118#comment-20682 Premium Members:

This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor premium member site and is available for download in the “Reports” section. Look for the report dated 09/05/14.

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Barry and the BCI Team

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By: Alan Ellman https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/#comment-20674 Sat, 06 Sep 2014 12:33:35 +0000 http://www.thebluecollarinvestor.com/?p=10118#comment-20674 In reply to David.

David,

Excellent question! We do use the same criteria because we are using percentages. Since the returns on ETFs are generally lower, a 10% or 20% call-to-action will be at a lower amount than for individual equities. For example, had we sold an ETF call for $1, we would buy back the option @ $0.20 or less in the first half of the countrat, a drop of $0.80.

Had we sold a stock call @ $2, we would buy back the option @ $0.40 or less in the first half of the contract, a drop of $1.60. Because we are using percentiles, we are accounting for the lower returns generated by ETFs.

Alan

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By: David https://www.thebluecollarinvestor.com/how-to-maximize-covered-call-writing-returns-by-understanding-time-value-and-theta/#comment-20673 Sat, 06 Sep 2014 12:25:31 +0000 http://www.thebluecollarinvestor.com/?p=10118#comment-20673 Hello Alan,

When writing covered calls on ETFs do you use the exact same exit strategies as with stock positions? Or do you make any amendments?

The question comes up as the expected returns are lower with ETFs so you might want to interfere earlier to protect your positions.

Thanks for your help.
David (from Hungary)

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