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Premium Stock Reports: Final Selections for Our Option-Selling Portfolios

The Blue Collar Premium Stock reports list eligible candidates for both covered call writing and selling cash secured puts. These files historically contain between forty to sixty securities and our members have developed many innovative ways to make final decisions as to which securities will be included in the current month’s portfolio. In this article, I will use the report dated 6/19/2015 which was published at the start of the July, 2015 contract month. The list consists of sixty-nine candidates that have passed our rigorous fundamental, technical and common sense screens. I will demonstrate an example of one way to reduce this file down to thirteen candidates which can then be evaluated for option returns.

 

Overview of the 6/19/2015 Premium Stock Report (top portion shown)

 

stocks for covered call writing and selling puts

The Blue Collar Investor Stock Report : 6/19/2015

Color key

  • Yellow: Upcoming earnings reports during the July contracts and therefore not eligible until the reports pass
  • Pink: Eligible candidates in bold showing the strongest stocks from a technical perspective
  • Brown: Highlights candidates with current industry rank of “A”

 

Screens used in this hypothetical example

  •  Stocks in bold
  • Industry rank of “A”
  • Adequate open interest (second column from right)
  • Price-per-share less than $100.00 (second column from left)
  • Avoiding earnings reports (yellow field)

 

Screen results showing industry and stock

Medical

  • ACHC
  • ICLR
  • AMSG
  • CBM
  • ZTS

Apparel

  • HBI
  • GIII

Software

  • SNCR
  • CRM

Consumer

  • LEG

Finance

  • SC

Building

  • TREX

Business Services

  • EPAM

 

Status update

To reduce our file of sixty-nine eligible candidates down to thirteen will take the average retail investor between fifteen to twenty minutes and only needs to be done once a month. The next step is to check the option chains to make sure we can locate an appropriate number of stocks to populate our portfolio needs. For example, a $50,000 portfolio will have five stocks while a $100,000 portfolio will have between seven to ten securities. Many of us may have rolled options from the previous contract month and may need only a few stocks to fully populate our portfolios. The calculations and ensuing trade executions will normally take between one to two hours depending on investor experience and portfolio size. Once again, this second aspect is accomplished once a month. From there, we are in position management mode which can be automated by setting up limit orders based on our 20%/10% guidelines.

I plan to write articles in the future covering the calculations and final portfolio decisions.

 

Discussion

There are a myriad of ways to use our Premium Stock Reports. In this article, I used bold stocks within industries currently ranked “A” as a starting point. These reports are geared to reducing the time it takes retail investors to set up elite option-selling portfolios.

 ***Premium members: Please use most current report.

Next live seminar

Northern New Jersey Saddlebrook Chapter of AAII
Monday July 20, 2015
6:15 – 8 PM

Link to register

“The Basics of Covered Call Writing with a brief description of Put-Selling”
************************************************************************************************

Market tone

Greece’s uncertain status continued to impact global financial markets as the country edged closer to debt default and a possible Eurozone exit. There will be more clarity after the results of a public referendum on Sunday. Positive US economic data countered concerns about Greece and slower growth in China.This week’s economic reports:

  • The US economy added 223,000 jobs in June, slightly below expectations of 230,000
  • The unemployment rate fell to a seven-year low of 5.3% as labor force participation dropped from 62.9% to 62.6%, the lowest since October 1977
  • Average hourly earnings were flat
  • The National Association of Realtors’ index of US pending home sales rose 0.9% to a seasonally adjusted 112.6, the highest level since April 2006, a great sign for the US housing market
  • According to the S&P/Case-Shiller 20-city index, US home prices rose 4.9% for the year ended in April, down slightly from 5.0% in March
  • The Institute for Supply Management index of national factory activity climbed from 52.8 in May to 53.5 in June, the highest level since January
  • Over the same period, however, US manufacturing purchasing managers’ index fell from 54.0 to 53.6, the lowest reading since October 2013
  • The Conference Board’s consumer confidence index rose to 101.4 in June, up sharply from 94.2 in May and above the consensus estimate of 97.3
  • Initial jobless claims rose 10,000 to 281,000 for the week ended 27 June, the 17th straight week below 300,000
  • Continuing claims rose 15,000 to 2.3 million for the week ended 20 June

For the week, the S&P 500 fell by 1.21% for a year-to-date return of 0.87%.

Summary

IBD: Uptrend under pressure

GMI: 1/6- Sell signal since market close of June 30, 2015

BCI: Cautiously bullish but still concerned over situation with Greece which may become more defined on Sunday.  Until this is resolved, I am selling an equal number of in-the-money and out-of-the-money strikes

Wishing you the best in investing,

Alan (alan@thebluecollarinvestor.com)

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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.

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29 Responses to “Premium Stock Reports: Final Selections for Our Option-Selling Portfolios”

  1. Barry Bergman July 4, 2015 6:53 am #

    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 07/03/15. For your convenience, here is the link to login to the premium site:

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

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    Best,

    Barry and The BCI Team

  2. Matteo July 5, 2015 7:29 am #

    Alan ,

    I just finished reading Selling Cash – Secured Puts and found it very interesting.

    I would like to better understand how to use Technical Analysis to decide whether to sell or not a certain option of a particular Stock :

    – do you sell only when the 20 ema is above 100 ema while MACD and Stochastic are positive?

    – In a more bearish frame (20 ema under 100 ema) do you do operations ?

    Could you answer these questions ?

    In “Selling Cash – Secured Put Advanced And Basic Principles ( DVD ) are these concepts explained in depth ?

    Thanks

    Matteo

    • Alan Ellman July 5, 2015 7:41 am #

      Matteo,

      My responses:

      1- When all technical signals are bullish (moving averages, MACD Histogram, stochastic oscillator, confirmed by volume) that stock is definitely under consideration. However, if signals are mixed (one of the signals neutral to bearish) I may still consider the security but lean to a deeper out-of-the-money strike for protection. For example, a bullish moving average, a neutral MACD and a bearish stochastic oscillator may lead to a deeper OTM strike.

      2- I will not enter a position if the 20-d is below the 100-d EMA but if already in a position I use the 3% guideline to initiate exit strategy opportunities.

      3- Yes, these concepts are addressed in depth in our DVD Program for cash-secured puts.

      Alan

      • Joe M July 10, 2015 11:39 am #

        Alan, What is the 3% guideline?

        • Alan Ellman July 10, 2015 12:49 pm #

          Joe,

          This is a BCI guideline for put-selling. We buy back put options if share price drops > 3% (4% or more) below the OTM strike price. See pages 137 – 139 of “Selling Cash-Secured Puts”

          Alan

  3. Fred July 5, 2015 7:45 am #

    Alan,

    I recently discovered your educational videos thru Youtube. Since then, I’ve watched the entire Beginner series. You have a knack for explaining things very clearly and methodically. I’ve also checked out your resources package.

    It is very generous of you to make all these things available at no cost. Thank you so much. I’ll make good use of them.

    I”ve had a couple questions about Covered Calls.

    — What do you think about writing covered calls out of a collar? This way you have an insurance on the downside. You can be selling mostly ATM / OTM calls.

    — Instead of owning stock outright, what do you think about synthetic long? So, instead of buying the stock, you can maybe buy a deep ITM for a longer duration? Say, buy a 6-month call and sell monthly or even weekly ATM calls?

    — I wonder if you can do a collar on a synthetic long? Buy a 6-month call (substitute for buying stock), buy an insurance ATM put (collar). Then sell an ATM call for a premium? If this is doable, it would take less capital, yes?

    — There might be some nuances I’m not aware of. Kinda new to options, that’s why I’m asking for your expertise.

    Any guidance would be greatly appreciated.

    All the best,

    Fred

  4. Jay July 5, 2015 10:46 am #

    Alan,
    In your modesty you neglect to mention the Premium Reports can also be used to build a longer term stock portfolio even though they are designed for shorter term trading. I still have stocks I bought off the list two years ago. They have appreciated far more than the S&P.

    In fact, a strategy that has served both my interest in a stable portfolio and monthly income/loss mitigation is to buy stocks off the list in at least 200 share lots so as to write calls against half and leave the other half alone. I never fuss when called since I still have the rest. I use the proceeds to buy new ones writing against only half of those. In time you accumulate a diverse portfolio of cream skimmed off the top while still getting monthly premiums.

    Thanks again for all you do. – Jay

    • Nate July 9, 2015 9:50 pm #

      Jay, that’s a great idea. What kind of stop do you have on the longer term holdings?

  5. Pete July 5, 2015 9:19 pm #

    Alan,

    Several weekly bull put credit spread trades this month in SWKS, AMBA, FFIV, GILD, BIIB, SYNA. Only loser was SYNA ( first loss since January). Profit for June was $3K, $43K YTD. Im totally out of the market as I write this. Looking at AMBA, CTSH, AVGO, SYNA and VRX next week.

    Regards,

    Pete

    • Jay July 5, 2015 9:32 pm #

      Hey Pete,

      Fabulous trading and thanks for sharing! Rock on, man :)

      I feel small in your shadow. I trade SPX spreads outside support and resistance levels.

      I make a lot more than I ever did selling calls and I do not put investment positions at risk.

      There are a hundred ways to skin the same cat :) – Jay

  6. Faye July 6, 2015 3:55 am #

    Hi Alan,

    I have been closely following the BCI premium weekly reports and have a question.

    In the last few weeks, the BCI sentiment had been cautiously bullish and you mentioned that you
    are selling an equal number of ITM and OTM strikes. The IBD big picture in the last 2 weeks says “uptrend under pressure.”

    How much weight do you give the IBD big picture and how does it factor in the decision for selecting the strike price?

    I am confused. It would seem that the market tone is a bit less bullish now than before considering what is going on in Greece
    as well as Puerto Rico and China.

    Wouldn’t it lead us to be more conservative and write more ITM calls? I guess I am trying to understand the thought process
    behind being cautiously bullish. Is this a longer term view?

    Thank you for clarifying.

    Faye

    • Alan Ellman July 6, 2015 4:15 am #

      Hi Faye,

      I’m happy to clarify.

      I have been “some form” of bullish on the market outlook for about five years now. I base my personal assessment on three factors:

      1- Chart of the S&P 500 (6-month)
      2- Status of CBOE Volatility Index (VIX)
      3- Weekly economic reports

      With the current information available I see no reason to move away from this long-term bullish outlook. However, with the situation in Greece, which I have been writing about recently, I have short-term concern regarding market reaction to this ever-changing news. This is why I started writing more in-the-money strikes in the past few weeks.

      Yesterday’s no-vote has NOT evoked extreme market volatility as of 4 AM ET on Monday meaning that markets still feel that Greece will remain in the Eurozone and probably anticipating another offer for Greece to consider…we must stay tuned.

      That said, with globalization of our markets a reality, I don’t know if there will ever be a time now or in the future when there will be absolutely no global concerns…it’s a reality for stock market investors everywhere.

      My BCI assessment is published only because some are interested and want to know how I am breaking down my current positions. I am happy to share that information but in no way feel that my approach is appropriate for every investor. Some are more aggressive, others more conservative than I am. There is no right or wrong here. This is why I also publish Dr. Wish’s GMI Index which is based on a series of sophisticated technical parameters and the market outlook of IBD’s proprietary market outlook rating. I do not factor in IBD’s assessment into my personal portfolios but know others do and want to provide other perspectives (whether they support or differ) from mine.

      To sum up: I am still bullish on our market and economy but have short-term concerns because of the situation in Greece and, as a result, have taken conservative positions in have of my portfolio trades.

      Alan

  7. Frank July 6, 2015 5:29 pm #

    Alan,

    I got all ready with my research over the weekend, and then started thinking about the actual trading process.

    I calculated all the best positions to take and the returns, but then I realize….I have to actually BUY the stocks….then figure out what the call options are that are available AT THAT TIME.

    I don’t think my broker has a “Buy/Write” alternative available to me, so I have to actually buy that stock, then look to call options possibilities.

    We are putting in “Market” orders, aren’t we? So the whole process of Pre-determing stocks and call-option pricing is going to depend alot on the actual price I end up paying for the stock AND the pricing of the options available at that time.

    Do we just figure if they were a good deal yesterday, they will be a good deal tomorrow when we actually buy the stocks and sell the options? Seems like things will be different than in the research process.

    Where can I go for further info on this process??

    thanks,

    Frank

    • Alan Ellman July 6, 2015 5:37 pm #

      Frank,

      It’s perfectly fine to do your preliminary calculations over the weekend or in the evenings but you will need to re-check pricing when you are ready to trade during hours when the market is open. If properly prepared that will not take a long time. Also, the relationship between share price and option premium will generally not change by a large amount from Sunday evening to Monday mid-day. For example, a 2.5% return calculated over the weekend will still be about that on Monday mid-day even though share price and option premium may have changed a bit.

      Let’s say you have 5 positions. Spend 5-10 minutes re-checking the prices. Then:

      1- Buy stock 1 and sell option 1

      2- Buy stock 2 and sell option 2 and so on

      Do this rather than buying stocks 1 – 5 and then options 1-5. As long as you’ve done your due-diligence over the weekend this will not take that much time. I strongly urge paper-trading before investing your hard-earned money. It will be well worth the time investment.

      Alan

    • Jay July 6, 2015 9:28 pm #

      Frank,
      I read Alan’s informative reply to your thoughtful post. His replies always add great insight to our questions. I feel silly chiming in again on this thread. But the comments have been superb and hit me where I have been so here goes….

      I am retired. Our low interest rate environment is supposedly a bane for retirees. Not so. I make more selling options today than I made when working. Lord, had I known it was this easy I would have retired long ago :).

      It really is not easy. I am joking. Money never grows on trees. My point is I have found a wonderful retirement hobby selling options. It is worth doing the home work to get boned up on!

      Frank, it begins and ends with stock selection. That is the risk. It is never the option we sell. I prefer limit orders splitting the bid ask with my broker. Pennies add up and can cover commissions. If you are nuisance enough they will fill your orders rather than show them per SEC regulations.

      Alan taught me this stuff :).

      Kindest regards to all who visit this blog! – Jay

      • Frank July 7, 2015 10:22 am #

        Jay
        Thanks for the reply. I really appreciate it. I’m brand new at this and I’m reading, studying, practicing, and trying to think it all through.
        I see that stock selection is critical, and not just the premiums and potential returns that can be made on them. if I choose really good ones, I will probably be called out! If I don’t choose such good ones, I will be “stuck” with them and perhaps that offets the other gains…hopefully in not too negative an amount! And at what point do you sell off your “losers”? I’m supposing when the fundamentals & technicals no longer qualify them for your watch list…in conjunction with your parameters of tolerable loss.
        My question for you is: do you buy your stocks on “Limit” orders, or a Market price? My broker assistant was telling me yesterday that the options were only sold on Limit orders, not Market orders???
        Thanks for your thoughts,

        Frank

        • Jay July 7, 2015 12:46 pm #

          Frank,
          Thank you for your kind note. I will happily answer your questions. But let me first say even though I have been doing this for some time Alan is our main expert on this board – and he never pays me for saying that :).

          The frustration many of us have felt selling covered calls is you have to be nimble or you under perform rising markets. As you allude, winners get called and you keep losers. There are many exit strategies Alan teaches to mitigate that but you can’t keep up with a bull :). When the market is going sideways or down it is The Greatest Show on Earth!

          When to sell a stock is a question for the ages. I lose my patience at about 15% trailing stop. I once used 10% but that was too tight. I then used 20% but it was already in the casket by then! So 15% trailing stop feels right for me.

          I suggest you always use limit orders for both stocks and options. The extra pennies will pay your commissions. You may not always get filled but it is better than not getting fair value. The machines are programmed to take as much of our money as possible. I always set my option sales above the mark and let the market come to me. Most of the time it does.

          And if I may humbly suggest, if you are dealing with a broker over the phone you are likely paying too much. Consider doing your trades yourself on line with a deep discount broker.

          Thanks again for the chance to throw my penny in the pool! – Jay

  8. Carl July 6, 2015 9:00 pm #

    I became a member yesterday. I have been studying the Weekly Stock Screening report for 7/3/2015 (my first). I don’t understand which fundamental or technical screens CRTO failed. What am I missing?

    Thank you,
    Carl

    • Alan Ellman July 6, 2015 9:04 pm #

      Carl,

      This is a great company that just missed out making our list this week. It failed one of the 6 categories in the IBD SmartSelect Ratings (see page 31 of the Complete Encyclopedia…) as shown below. We require all 6 categories to be in the top ranking (green).CLICK ON IMAGE TO ENLARGE & USE BACK ARROW TO RETURN TO BLOG.

      Alan

      • Frank July 7, 2015 10:39 am #

        Alan,

        I see that now, also. I didn’t see it over the weekend, and I had CRTO on my list too! I haven’t subscribed to your premium service…yet! I wanted to try to do research myself and rely on my own — developing — “skills” first. I was pleased that I came up with several others that I’ve seen mentioned in this thread, including SWKS, AMBA, GILD, AND BIIIB. I also had CYBR, which looked really good over the weekend, but took a little nose dive yesterday!

        Question…I’ve looked all over for the StockScouter, and I can’t find it. Looks like MSN ditched it??? Any other fundamental crosschecks besides IBD data and common sense indicators??

        Hope to come to a seminar sometime. Maybe you will come out to Southern Calif again sometime???

        Thanks

        Frank

        • Alan Ellman July 7, 2015 10:53 am #

          SCOUTER:

          We have been in touch with the company that developed the algorithm for the Stock Scouter. We are told it will re-appear in some venue yet to be determined. In the interim, we’ve been able to access monthly Scouter stats that we have included in our current weekly premium reports.

          For those who are not premium members, we suggest decreasing risk by using low-beta stocks (below 1.5 at least) and favor ITM strikes in questionable market environments. Remember that our stock selection is based on a series of screens in multiple areas so no one screen will make a major difference. Therefore, even without the Scouter, the selections will be high-quality choices.

          I am also working on an alternative risk screen should the Scouter not become available in the future (unlikely) and that will be information I will share with both premium and general members.

          For now, using all other BCI screens will still result in elite-performers.

          Alan

          • Michele November 21, 2015 11:30 am
            #

            Hi Alan. Any update on the Stock Scouter screen? Are you now using an alternative in identifying potential stocks? Thanks in advance.

          • Alan Ellman November 21, 2015 11:50 am
            #

            Michelle,

            We have been in touch with the company that developed the algorithm for the Stock Scouter. We are told it will re-appear in some venue in the near future. They are in the process of negotiating with vendors and appear close to a deal. In the interim, we’ve been able to access monthly Scouter stats from these developers and have included them in our current weekly premium reports.

            For those who are not premium members, we suggest decreasing risk by using low-beta stocks (below 1.5 at least) and favor ITM strikes in questionable market environments. Remember that our stock selection is based on a series of screens in multiple areas so no one screen will make a major difference. Therefore, even without the Scouter, the selections will be high-quality choices.

            I am also working on an alternative risk screen should the Scouter not become available in the future (unlikely) and that will be information I will share with both premium and general members if and when the need arises.

            For now, using all other BCI screens will still result in elite-performers.

            Alan

  9. Alan Ellman July 7, 2015 5:28 pm #

    Running list stocks in the news: ACHC:

    With the recent Supreme Court ruling solidifying the status of the Affordable Care Act I thought I’d examine our Premium Watch List for stocks that may benefit. Acadia Healthcare is the largest provider of inpatient behavioral health care services in both the US and the UK. It utilizes a unique comprehensive approach to assisting patients to overcome mental and substance abuse problems.

    Our Premium Running List shows ACHC to be in the Medical Industry currently ranked “A”, a beta of 1.24, a Scouter
    Rating of “7”, adequate open interest for near-the-money strikes and a projected next earnings report date of 7/28/2015.

    Have a look at the bullish technical chart as of 7/7/2015. CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

    Alan

  10. Alan Ellman July 8, 2015 11:50 am #

    All trading On the NY Stock Exchange has been halted due to a technical glitch…no other information is available. Trading is expected to resume shortly.

    Alan

    • Alan Ellman July 8, 2015 12:25 pm #

      No indication of a cyber attack. All other exchanges trading normally. Most trading is taking place normally…does not appear to be a major event…

  11. Barry B July 8, 2015 1:43 pm #

    The exchange believes that the problem is technical in nature. One report said that it was a “gateway router”. A router acts like a traffic cop directing data flow across the NYSE network.

    • Jay July 8, 2015 2:31 pm #

      Thanks for the update posts, guys. Even though we seem to be in a China and Greece funk with almost everything selling off the computer glitches and potential threat of cyber attack make me more of a believer in one of my favorite ETF’s these days: HACK.

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