Comments on: Managing Covered Call Trades While Working A Full-Time Job https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/ Learn how to invest by selling stock options. Wed, 12 Mar 2014 23:44:17 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18711 Wed, 12 Mar 2014 23:44:17 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18711 In reply to gkoption.

Greg,

The concept behind the 20/10% guideline is twofold. First we want to put ourselves in a position to mitigate losses, turn losses into gains or enhance gains. This means closing the short options position first. Second, we want to retain 80-90% of the original option profit because that is our goal when using the strategy of cc writing…generating time value cash flow.

When it comes to buying back the option, our limit order is @ 20% or 10% depending on how close to expiration we are. Let’s assume we are early in the contract and the 20% guideline applies. Let’s further assume we sold the original option for $2. We place a buy-to-close limit order @ $0.40. This means that the trade will be executed @ $0.40 or better (less than $0.40). If the option price gaps down below the $0.40 price it simply means that we will spend less money to close our short position. Whether the trade is executed @ $0.40 or less, we are now in a position to wait and re-sell the same option if share price recovers, sell a lower strike option (roll down) or sell the stock. My books/DVDs give guidelines, details and examples of the various scenarios.

BTW: Thanks for calling me smart…just confirms what my mother has been saying all these years!

Alan

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By: gkoption https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18708 Wed, 12 Mar 2014 15:51:16 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18708 Hi Allen

I am confused about placing a limit order or stop loss order for protection. I read that with a limit order there is a danger of the stock or option gaping past the limit (premarket) and then your losses could grow without the limit ever being hit. The stop loss will definitely stop you out, but because it becomes a market order the price you get stopped at is not exactly at the point you requested.

You are a very smart and successful investor could you clarify why you use a limit order instead of a stop loss order?

Thanks Greg

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By: Alan Ellman https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18707 Wed, 12 Mar 2014 14:23:52 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18707 In reply to Ken.

Ken,

Both our stock and ETF reports identify securities that have both passed our rigorous screening process and also have weekly options associated with them. As you know, protective puts will protect against a catastrophic downturn in share price but also decrease our premium returns. You can absolutely generate a profit w/o using volatile stocks as long as the put if further out-of-the-money than the call. Once you determine what your goal is, you can then decide which securities are appropriate for the strategy you are using.

Alan

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By: Ken https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18706 Wed, 12 Mar 2014 14:21:17 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18706 Hi Alan,

I am on a 1 month’s trial subscription. I wonder if you cater for weekly stock options listings? I hope so. I would like to find out companies that would allow me to purchase long married puts and still come out with a profit. Is that possible without using a highly volatile stock with risky high premium?

Ken

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By: Alan Ellman https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18697 Tue, 11 Mar 2014 16:12:48 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18697 In reply to Paul.

Hi Paul,

Thanks for attending my presentation last night.

There is actually a name for this strategy…a covered strangle (not my area of expertise). It is more involved than a covered call and therefore appropriate for more sophisticated investors. It is a popular options strategy.

This strategy consists of two parts: (1) short a call and long the underlying stock, and (2) short a put with sufficient cash to purchase the stock if assigned. This is a combination of the covered call and cash-secured put strategies I mentioned last night. If the stock rises above the call strike at expiration, the investor is likely assigned on the call. If the stock falls below the put strike at expiration, the investor is likely assigned on the put and obligated to buy more stock at the put strike.

The strike price selected for a short put will depend, to a great extent, on whether you are inclined to take possession of the stock. If no, go deeper OTM.

Alan

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By: Paul https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18696 Tue, 11 Mar 2014 16:09:51 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18696 Alan,

Thank you for a wonderful seminar last night at the LI Stock Traders Meetup Group!

1) While holding a stock position can you write an out of the money Call and an out of the money Put at the same time? If so, do you recommend it?

2)In an up trend would it be better to write an at the money or in the money Put rather than an out of the money Call?

Thank you !

Regards,
Paul

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By: Alan Ellman https://www.thebluecollarinvestor.com/managing-covered-call-trades-while-working-a-full-time-job/#comment-18685 Mon, 10 Mar 2014 11:47:04 +0000 http://www.thebluecollarinvestor.com/?p=9391#comment-18685 Virtual options order form:

The original screenshot in this article showed a limit order to buy back a $28 call. That was a typo and should read $30 call (the one originally sold) as now highlighted in the updated screenshot. Thanks to those members who alerted me to this matter.

Alan

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