The Elite Calculator is complete! For the past several months the BCI Team has been developing an enhanced version of the Ellman Calculator (ESOC). The Basic Calculator contains the following tabs:
- Intro
- Single tab
- Multiple tab
- “What now” tab
The Elite version contains these four tabs plus two more:
- “Unwind now” tab
- Schedule D
The first of these new additions has been available to premium members for the past few months and has been explained in the following journal article:
The purpose of this article is to explain the benefits of the Schedule D particularly for those trading outside of sheltered accounts. As you will see, a lot of time and effort has gone into the expanded version of the calculator.
Schedule D
In non-sheltered accounts, if you sold a stock or option, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks complicated and it certainly can be.
Your extra work will be greatly reduced by the Schedule D tab of the Elite Calculator. You will also be rewarded by tax savings. If you lost money, this form will help you use those losses to offset any gains or a portion of your ordinary income. And if you profited from your transactions, it will help ensure you don’t overpay the government for your gains.
When you make money on a sale, Schedule D requires you to report the transaction using some basic information, including when you bought the asset and when you sold it. This is critical, because how long you hold the property determines its tax rate.
If you owned the security for a year or less, any gain will cost you more in taxes. These short-term assets are taxed at the same rate as your regular income, which could be as high as 35 percent on your return. Short-term sales are reported in Part 1 of the form.
However, if you held the security for 366 days or more, it’s a long-term asset and is eligible for a lower capital gains rate — 15 percent or even zero percent, depending upon your income level. Sales of these assets are reported in Part 2 of the form.
Information required:
- Name of asset
- Date purchased
- Date sold
- Price sold
- Cost basis
- Gain/loss
The gain or loss that you enter is figured by subtracting your basis from the sales price.
Information tab
Figure 1 below shows the Schedule D information tab accessed by clicking on the icon highlighted by the red arrow:
Intro page
Figure 1- Information tab
I have highlighted the following areas:
- Yellow-personal information to enter
- Green- user information
- Pink- six entry codes or different pages of the Schedule D specific for the type of trade
Covered call writers will use predominantly entry tabs D2, D3 and D4.
Entry tab D2
We use this entry code when we buy a stock, sell the call and our shares are assigned. In all entry tabs, information is entered in blue areas only as shown in figure 2:
Entry tab D2- enter info
Figure 2
In this example, we bought AAPL for $200 and sold the $200 call for $650. The calculations will appear in the right side of the tab in the “white areas” Figure 3:
Entry code D2- results
Figure 3
The red-circled area shows a short-term profit of $650.
Entry tab D3
We use this code when we buy a stock, sell the option and then buy back the option. Once again, the information is entered in the blue areas as shown in figure 4:
Entry tab D4- enter info
Figure 4
The calculations will appear in the white areas on the right side of the tab as displayed in figure 5:
Entry tab D4- results
Figure 5
Since the option was sold for $650 and repurchased for $124, the spreadsheet shows a short-term capital gain of $526 (red circle).
Entry tab D4
We use this entry tab when we buy a stock, sell the call and the option expires worthless. The blue cells are filled in as shown in figure 6:
Entry tab D4- enter info
Figure 6
Note that the option on line 1 was sold in 2009 while the option on the second line was sold in 2007. Next we view the calculations on the right side of the tab in the white areas (figure 7):
Entry tab 4 results
Figure 7
The green area shows a short-term capital gain of $650 and the yellow area shows a long-term capital gain of $1100. The totals capital gain of $1750 (red circle) is broken down into short and long-term at the bottom of the page.
The other entry codes are for stocks or options only and not the combination of the two as we utilize for covered call writing. At the time of the penning of this book consideration was being given to expanding the Schedule D to include puts.
How to purchase the Elite Calculator:
The Elite Calculator is offered for FREE to premium members and available in the resource download section. Also available in this area is the 23-page user guide. General members can obtain the enhanced version of the calculator in the Blue Collar Store:
http://www.thebluecollarinvestor.com/store.shtml
The calculator and user guide will be emailed directly to your computer.
The information gleaned from the Schedule D of the Elite Calculator should be used in consultation with your tax advisor.
Owen Sargent (oustanding CPA who helped develop the calculator) can be contacted @ (osargentcpa@aol.com) to answer any questions relating to the calculator or tax consequences from options trading.
Market tone (as of June 8th):
A 3-month chart of the S&P 500 and the VIX shows a bullish reversal of the S&P 500 (red arrows) and another bullish reversal of the VIX (green arrows). Although encouraging, the inherent volatility associated with these dramatic whipsaws is of concern to conservative investors like us. Here is the chart:
S&P 500 vs. the VIX as of 7-8-10
Summary:
IBD- Market in a confirmed uptrend
BCI- Cautiously bullish and leaning towards favoring I-T-M strikes for the upcoming contract cycle.
Thanks from the Ellman family:
Your kind emails regarding my son’s marriage meant a lot to us.
My best to all,
Allan,
I’m so excited. I hit my first double today on apkt. Sold the 30 option for a profit of $352 (300 shares). I bought back the option last week for .15 and resold it today for.45. My total one month profit is $429 or 4.8%.
Thanks for your books and website.
Susan
Hello Susan,
Great job! As Yoda said…”Believe in the Force”…
Barry
Hello Alan..
Just a few questions in regards to measuring ‘short interest’.
1)How do measure short interest with a particular stock?
2) Where can we find this information?
3) How do we measure short interest on an index?
4) Where can we find this information?
5) Do you ever evaluate short interest on a stock or an index yourself? Does this ever effect your investment decisions? Why/why not??
Thanks Alan
Dave
Dave, I thought I would take a swing at this one.
You can use http://www.shortsqueeze.com. The free portion contains pretty much what I am looking for.
I have also found another very useful website that I think everyone should mark as a favorite. It is http://www.dailyfinance.com. Believe it, or not, it is the website that the AOL main page sends you to if you want a stock quote. This site has not one, but two, important pieces of information which covered call writers will find very helpful.
In the first section of the quote info is a total outstanding shares figure for the stock. To the right of that, just below the dividend yield and dividend date is, ta da, SHORT INTEREST! Now, you should do a little quick math to see what percentage of the outstanding stock is shorted (divide the short interest amount by the outstanding shares (and watch the number of zeroes…dividing 400 million into 2 billion is not the same as 400 million into 200 million)).
Disclosure: dailyfinance does not give short interest figures for ETFs, but shortsqueeze does.
Now for the other really neat piece of information dailyfinance provides. In the “Perfoamance Details” section, below the usual quote information you will see earnings information, including, TA DA (again, and bigger) the NEXT EARNINGS DATE!!!! How’s that for a free site you can get to from the middle of AOL.
I love this country, and free web stuff. Happy trading everyone.
Dave,
Sorry, in my last rambling I forgot to answer your fifth question. I don’t know how Alan will answer the question, but I certainly consider the short interest. Here’s why.
Short sellers have often done a serious amount of digging to uncover corporate accounting irregularities or outright skullduggery. The higher the percentage of the short position the more you should look at the stock closely. Now, that doesn’t mean the shorts are always right. Sometimes they are just pessimists that think the company stinks and they can make some money on the downhill side.
Here is the most important reason to consider the short interest. When buyers start pushing a stock up there are really two types of forces in action. The first is the usual buyer who sees the stock on the IBD list of 100 and figures it will continue to climb. That enthusiasm can begin to falter the higher the stock gets.
The second type of buyer is the short covering buyer. When the stock starts to go up he/she loses $1 for each dollar the stock goes UP! You have probably heard the expression “short squeeze”. What happens is the upward pressure on the stock starts to get greater as the shorts give up and buy the stock to cut their losses.
Think of this way: have you ever seen those fire department contests, the fastest hose layers, the quickest ladder climbers, etc? Well, one of those contests is sort of a reverse tug of war. They put a barrel between the teams. Each team uses a fire hose to try to push the barrel across the other teams line. Now, imagine that one of those teams suddenly has TWO hoses pushing that barrel. That is pretty much what happens when the shorts jump in the buying frenzy to cover their losses. You have a bunch of greedy people buying low to sell higher, and a bunch of greedy people who sold high trying to avoid buying higher. Twice the force a normal stock would have.
So, Dave, in answer to your question, yes, the short interest is important because it can cause the short term buying pressure to be greater than normal. The big problem is, on, say, a 500 million share day you can’t tell how many were enthusiastic buyers of the stock and how many were dissilusioned short sellers. The short position is just one more of those little hints you can use to help you lean one way, or another, in making your decision.
Post # 4 and 5
Very informative, Owen.
Premium members:
This week’s Weekly Stock Screen and Watch List has been uploaded to your premium site. The list of top-performing ETFs was previously uploaded for those who missed a previous update. Look in the resource/download section for the latter. I will be catching up on emails over the next few days.
Alan
Thanks Owen for the information there…
All the best…
Dsve
I noticed that in this week’s premium report that many of the stocks are reporting earnings during the August expiration. Any suggestions as to how to find stocks when the pool is so much smaller?
Thanks for any ideas.
Steve
Steve,
The Premium Report sorts the watch list by ER dates. So, over the course of the month, each passing day will provide additional opportunities.
Counting the stocks that have ER in this month, there are 17 stock on the current watch list that become candidates within the first week of the new August option month (of course depending on how they look next week).
Barry
Steve,
In addition to Barry’s great response you may also want to check out this related article:
http://www.thebluecollarinvestor.com/blog/locating-covered-call-candidates-during-earnings-season/
Alan
I have had a few offiste inquiries as to how premium members can “order” the Elite Calculator. This tool is FREE to premium members and does NOT have to be ordered. Simply log-in to the premium site and the calculator can be accessed in the “resource/download section.
Alan
Check this out. In May I bought FFIV for 68 and sold the June 70 strike. Then I rolled out and up to the July 75 strike making a total of 7.5% in option returns. Today the stock is at 77. I plan to allow my stock to be sold at 75 (july 21 earning report) and make another 10% on share value. That’s 17.5% in 2 months. i may get back in after the report. Hope some of you had this one as well.
Ted
HSP:
This stock has been included in the premium report over the past few weeks. For the past four earnings reports there have been positive surprises and the stock recently hit a 52-week high. The April ER showed a 17% rise in sales with a fabulous debt-to-equity ratio of .60%. It has a forward PE ratio of 17x compared to the industry average of 21x. The next ER is sceduled for July 29th and, if positive, we may be able to ride this one even more.
Alan
Earnings season:
Just a reminder that tomorrow is expiration Friday for the July contracts. Before considering rolling out or out and up, it is prudent to check ER dates. In the BCI system we NEVER sell options on stock reporting in that contract cycle unless the report has passed and there is still time remaining to generate acceptable returns.
Alan
PAY:
Strong 2nd quarter earnings and revenues. Excellent overall fundamentals and a decent chart pattern. Has been on our premium list for 4 weeks and is scheduled to report earnings next on September 1st. A relatively volatile stock with a beta of 1.67 is currently returning nearly 5% for the A-T-M strike. May be for the more aggressive investor.
Alan
Top ETFs:
Premium members- This week’s list of top-performing ETFs has been uploaded to your premium site. Look for “top-performing ETFs 7-15-10″. You will notice that during the past 3 months the S&P 500 has declined by 9% while these high-fliers have appreciated between 5% and 12%. As always we have also included other top 10 ETFs with options.
Alan and the BCI Team
Alan or Barry,
This is my first post. Thank you for all the great information in the blog archives. Alan, have you considered collecting all your weekly articles, lightly editing them, and putting them into another book? Multiple streams of income, you know.
Is there a preferred time to check on the prices of one’s options and stocks; for example, in the evening after the market closes and away from the excitement of watching tickers? Or do you set alerts through your broker or other services to email or text you if an option has a BTC because of a declining stock price?
Thanks again,
Brandon
Hi Brandon,
Welcome to the BCI community, it’s great to have you aboard!
I am currently writing my third book which will include much of the material contained in the three years of journal articles I have published on this site. I hope to have this book available by the end of the year.
I place my stocks and options in a watch list (see chapter 10 of “Cashing in on Covered Calls” when you receive it) and check it periodically during the course of the day. When you check will probably depend on your specific schedule. It only takes a few seconds each time. My preferred time for entering cc positions is between 12 – 3PM EST as early morning and late afternoon volatility is not a factor.
As an experienced cc writer, we look forward to hearing from you in the future on this site.
Alan