Comments on: In-The-Money Strikes and Covered Call Writing https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/ Learn how to invest by selling stock options. Tue, 09 Aug 2022 01:11:10 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6566 Thu, 16 Aug 2012 21:46:09 +0000 /?p=6767#comment-6566 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

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6565 Thu, 16 Aug 2012 19:10:20 +0000 /?p=6767#comment-6565 In reply to Henry.

Henry,

If the option is exercised, the option transaction becomes part of the stock transaction. The option premium is added to the strike price received, less commissions. If the stock has been held for less than 1 year, the entire transaction is short term. If held more than 1 year it is long term as the option holding period is ignored. See Chapter 13 of “Encyclopedia….” for more details and as always contact your tax advisor before making any tax-related decisions.

Alan

]]>
By: Henry https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6561 Thu, 16 Aug 2012 12:02:45 +0000 /?p=6767#comment-6561 Alan,

If an option is exercised how is it determined if the premium is long or short term capital gains? Thanks for your help.

Henry

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6558 Wed, 15 Aug 2012 13:06:32 +0000 /?p=6767#comment-6558 Running list stocks in the news: AGU:

On August 2nd AGU (fertilizer company) reported a stellar 2nd quarter earnings report with profits up 20% year-to-year and revenues up 10%. The shares reached a new 52-week high on August 8th of $97.89. This report along with the drought in the mid-west (higher crop prices) bodes well for this company through the end of the year. AGU boasts a forward PE of 9.7 (below 15 shows value), a price-to-sales of 0.9 (below the benchmark of 1.0), and a price-to-book of 2.1 (below 3.0 shows good value). Our premium watch list has an industry rank of “A”, a beta of 1.22 and a % dividend yield of 1.00.

Alan

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6552 Tue, 14 Aug 2012 18:23:05 +0000 /?p=6767#comment-6552 In reply to Frank.

Frank,

I would only be concerned of early exercise if there are potential tax consequences. In such situations I would favor strikes that had the greatest chance of the time value being > than the dividend to be distributed. But generally, I treat these equities as if there is no dividend and the option premium itself is enough motivation to use this security. If the dividend is captured as well, even better!

As an aside, if the option is exercised early in the contract cycle, you have maximized the profit on that trade and the cash can be used to start a second income stream with the same cash in the same month.

Alan

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6549 Tue, 14 Aug 2012 10:45:08 +0000 /?p=6767#comment-6549 Running list stocks in the news: ASH:

On July 26th, Ashland (maker of Valvoline products and other chemicals) reported its 7th consecutive positive earnings surprise with revenues increasing by 23.5%. It represented a 13.3% positive earnings surprise. Projected earnings growth for 2012 has been raised to 31.9% and 15.5% for 2013. It trades at a reasonable forward PE of 11.21, inline with industry average and a stellar PEG ratio of 0.68, a 32% discount to industry average. Our premium running list shows an industry rank of “B”, a beta of 1.59 and a dividend yield of 1.20%.

Alan

]]>
By: Barry B https://www.thebluecollarinvestor.com/in-the-money-strikes-and-covered-call-writing/#comment-6545 Tue, 14 Aug 2012 03:06:35 +0000 /?p=6767#comment-6545 In reply to Dave D.

Dave,

As a broad generalization, it is a good idea to use limit prices. If you use market prices, the market maker can deliver a transaction such as you experienced. Over the long haul…across your investing and trading career…these pennies can add up to thousands! When I trade, the only time that I use a market order is when the market is dropping rapidly and I want to exit a position quickly.

See Alan’s blog article “Playing the Bid-Ask Spread When Selling Covered Call Options” dates 5/26/12 for more information.

Best,

Barry

]]>