Comments on: Using Covered Call Writing To Increase The Returns From A Buy And Hold Portfolio: Part I https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/ Learn how to invest by selling stock options. Wed, 04 Dec 2013 17:41:22 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17644 Wed, 04 Dec 2013 17:41:22 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17644 HOLIDAY DISCOUNT:

From now through December 24th, the BCI team is offering a 10% holiday discount on all items in the Blue Collar store. Use promo code “HOLIDAYDISCOUNT”

Premium members please enter the store from the premium site to get your additional premium member discount.

Happy holidays from…

Alan and the BCI team

]]>
By: Ron https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17627 Mon, 02 Dec 2013 18:52:58 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17627 Great advice as usual Alan. Thank you and have a great holiday!

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17622 Sun, 01 Dec 2013 23:14:57 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17622 In reply to Ron.

Ron,

I think I understand your dilemma now. If not, please respond with a specific example and stats.

You want to roll out and up to capture share value lost by the option obligation plus generate enough time value to cover the cost to close the short options positions. If you roll out and up to the next month the time value will not be adequate enough to accomplish this so you must go further out in time. Do I have this right?

If I do, your goal wants to negate the main disadvantage of covered call writing which is limiting profits from share appreciation because of the option obligation. Because you are undertaking this obligation the option buyer is paying you cash and you are undertaking this risk. The risk cannot be negated, only managed.

You can initiate your trades by selling options deep out-of-the-money. This will mitigate risk of losing out on share appreciation but also get you lower % returns. It will also minimize the risk of early exercise when ex-dividend dates are nearing.

The issue here is that you are combining two strategies…dividend capture and cc writing. You are juggling four balls instead of three. One methodology you may want to consider is to have 2 separate portfolios, one devoted to dividend capture and one to cc writing. This will allow you to make the best decisions for each strategy and eliminate the dilemma you inquired about.

Alan

]]>
By: Ron https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17621 Sun, 01 Dec 2013 22:54:33 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17621 Sorry Alan I left out an important piece of information. In the situation I described I am normally looking to roll up to cover the price appreciation. Indecision has been my enemy since waiting too long means I have to move too far in the future to gain enough time value to cover the cost of buying back the ATM call and selling a higher strike. An alternative might be to wait and see if the price falls back. Do you have any recommendations for dealing with this scenario?

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17617 Sun, 01 Dec 2013 19:49:37 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17617 In reply to Ron.

Ron,

Rolling (out) an option will almost always result in a time value credit unless both near and far-term options are extremely deep in -the-money and trading @ parity. Perhaps you can share an example where there was no credit. I’m sure this aberration will be of interest to the BCI community.

I will be speaking in Phoenix on April 8th. If time permits and you attend, please introduce yourself to me.

Below is a screenshot for JAZZ options chain, a stock currently on our premium watch list, showing a credit of $2.20 if rolling out today. The credit will actually be more if we “negotiate” a better price. CLICK ON IMAGE TO ENLARGE AND USE THE BACK ARROW TO RETURN TO THIS BLOG.

Alan

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17615 Sun, 01 Dec 2013 19:33:03 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17615 In reply to Mark.

Mark,

Glad to help…more to come in Part II.

Alan

]]>
By: Ron https://www.thebluecollarinvestor.com/using-covered-call-writing-to-increase-the-returns-from-a-buy-and-hold-portfolio-part-i/#comment-17614 Sun, 01 Dec 2013 18:57:56 +0000 http://www.thebluecollarinvestor.com/?p=8944#comment-17614 Thanks Alan, I, like many of your subscribers have long held stocks that I don’t want to have called away. I always struggle with the decision of when to roll when the price appreciates to or above my strike price. I find that if I wait too long I’ve lost too much time value and rolling at break even or at a profit is problematic. Maybe this is an area you plan to address but I think you will say its just part of writing CC’s.

Happy Holidays …. hope to see you out here in Phoenix in the new year

]]>