Comments on: Stock Option Expiration Cycles: Beware Of Expiration Dates https://www.thebluecollarinvestor.com/stock-option-expiration-cycles-beware-of-expiration-dates/ Learn how to invest by selling stock options. Wed, 29 May 2013 23:29:07 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/stock-option-expiration-cycles-beware-of-expiration-dates/#comment-13602 Wed, 29 May 2013 23:29:07 +0000 http://www.thebluecollarinvestor.com/?p=8025#comment-13602 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. The report also lists Top-performing ETFs with Weekly options.

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Alan and the BCI team

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By: Alan Ellman https://www.thebluecollarinvestor.com/stock-option-expiration-cycles-beware-of-expiration-dates/#comment-13510 Mon, 27 May 2013 13:42:52 +0000 http://www.thebluecollarinvestor.com/?p=8025#comment-13510 DEEP IN-THE-MONEY-STRIKES: Offsite Q&A:

Hi Alan-

Now that I have been doing this a few months and am seeing first hand what is happening, I am wondering whether many investors use your approach as a primary retirement income strategy? I have a reasonably significant portfolio which is still largely invested in stocks and have applied a small portion towards experimenting with the covered calls. With a small sample size, it appears that it is certainly possible to achieve one month returns of 2-3% or more (granted the market has done well anyway over the past 3 months).

I notice on many of the option chains that there are opportunities to earn about a 1% premium on very deep in the money covered call positions that offer downside protection of 10-25% or even more. This looks like an extremely low risk way to invest that would almost certainly yield a 1 year return of 8-12%. While that’s not necessarily a good option for someone trying to build a large retirement nest egg, for someone that is entering retirement with reasonable means, this is attractive.

Also, I notice that there are open positions for covered calls that offer negative return…am I missing something?

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Al,

You are 100% spot on in your assessment of deep ITM strikes…you can generate decent returns with excellent protection OF THOSE RETURNS. Some of the reasons I don’t recommend specific stock/option combinations are because investors have different goals, needs and risk tolerances, not to mention portfolio sizes. A few things you should consider:

1- If we sell ITM strikes or if the strike becomes ITM by expiration Friday lour shares will be sold that Saturday, even if the price is only $0.01 above the strike price. If you want to retain your shares, you must roll then option prior to 4PM EST on expiration Friday.

2- If your shares generate quarterly dividends there is a chance of early assignment the day prior to the ex-dividend date so here to you will need to roll ther option 2 days or more prior to the ex date if you want to retain your shares. This is because most deep ITM strikes have little or no time value and the option holder may generate more favorable returns via early exercise.

3- NEGATIVE RETURNS: As I stated above, deep ITM strikes have little or no time value as the strike moves deeper ITM. Throw in the bid-ask spread differences and a negative return is possible. Needless to say, avoid these situations and look to another cc writing opportunity.

Alan

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By: Barry B https://www.thebluecollarinvestor.com/stock-option-expiration-cycles-beware-of-expiration-dates/#comment-13477 Sun, 26 May 2013 02:16:04 +0000 http://www.thebluecollarinvestor.com/?p=8025#comment-13477 Premium Members,

The Weekly Report for 05-24-13 has been uploaded to the Premium Member website and is available for download.

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 BCI YouTube Channel link is:

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

Best,

Barry and The BCI Team

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By: Alan Ellman https://www.thebluecollarinvestor.com/stock-option-expiration-cycles-beware-of-expiration-dates/#comment-13458 Sat, 25 May 2013 13:11:15 +0000 http://www.thebluecollarinvestor.com/?p=8025#comment-13458 Running list stocks in the news: FLO:

On Wednesday Flower Floods announced a 3-for-2 stock split and an increase in their dividend. The split and dividend are payable on June 19th to shareholders of record June 5th. The dividend increased by 5.5%

Here is a link to an article I pubhlished showing how a 3-for-2 split impacts our cc writing positions:

http://www.thebluecollarinvestor.com/stock-splits-and-their-impact-on-our-option-contracts/

Alan

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