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20%/10% Guidelines for Covered Call Writing and Put-Selling: Same Name, Different Circumstances

Exit strategies for our covered call writing and put-selling portfolios allow us to mitigate potential losses and enhance gains to even higher levels. In my books and DVDs, I detail the 20%/10% guidelines as one of the exit strategies available to us for both strategies. Although the name is the same, the circumstances are different for each strategy and this article will highlight those distinctions.

Covered call writing with the 20%/10% guidelines

We are in 2 positions: long stock + short call. Every exit strategy starts with buying back the option. After entering the covered call position, if the stock was sold first (most brokerages would not permit this for most retail investors), it would leave us in a risky naked short-call option position. Therefore, we first buy back the option on a declining share price when the option (“ask”) price reaches 20% of the original sale price in the first half of the option contract or 10% in the latter half of the contract. If the option was sold for $2.00, the thresholds to close would be $0.40 or less and $0.20 or less, respectively. The rationale for the change in threshold relates to Theta or time-value erosion which dictates how much money we are willing to spend to close the short call. We have a much greater opportunity to benefit from time-value credits early in the contract compared to later in the contract when time-value declines exponentially as depicted in the chart below:

option Greeks

Theta and Time-Value Erosion of Our Options

For covered call writing, the 20%/10% guidelines relate to a declining share price.

Put-selling with the 20%/10% guidelines

We are in 1 position, the short put. We have the 3% guideline if share price declines and the 20%/10% guidelines if share price rises exponentially. Option value will fall if share price rises. If option value declines to the point where we can retain 80% – 90% of the original time-value profit early in the contract, we can close the short put position and use the cash that previously secured the original put sale to enter a new put position and generate a 2nd income stream in the same contract period with the same cash investment. This is analogous to the mid-contract unwind exit strategy for covered call writing. Here is the hypothetical example I used in my book, Selling Cash-Secured Puts (page 143).

  • Stock trading at $51.00
  • Sell the $50.00 out-of-the-money put for $1.50
  • Cash required to secure the put trade is $4850.00 ($5000.00 – $150)
  • Initial return is $150.00/$4850.00 = 3.1%
  • In the 1st half of the contract, the share price accelerates to $57.00
  • The $50.00 put premium value declines to $0.30 or 20% of the original put premium
  • Buy back the $50.00 retaining 80% of the original put profit
  • Use the $5000.00 per contract cash (less put premium) to secure another put position which generates more cash than the cost-to-close the original one


The 20%/10% guidelines apply to both covered call writing and selling cash-secured puts. Since option premium is directly-related to share price movement for covered call writing and inversely-related for put-selling, the strategy is used to mitigate losses in the former and enhance gains in the latter.

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:


I just want to give you one more big thank you for the advice concerning below sold puts. SNAP tanked after the earnings report but I still managed a $42 profit on my cash-secured put as I dodged a bullet. I am also studying your beginner’s courses very closely. NO MORE playing near earnings!!

Regards and Go Army,

Jeff S.

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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.

47 Responses to “20%/10% Guidelines for Covered Call Writing and Put-Selling: Same Name, Different Circumstances”

  1. Mike February 22, 2020 2:26 am


    I am very impressed with your you tube video describing how to increase dividend yields using leaps.

    I think this strategy would also be a good (and conservative) way for an investor to protect his/her dividend portfolio from a stock price decline in a bear market or market crash. If an investor used this strategy to lower his/her basis in a stock during such a decline, the increase in dividend yield could be permanent. Most good companies do not lower their dividend just because stock prices have declined.

    Please let me know what you think.

    I have been watching your videos for years and I enjoy everything that you do.



    • Alan Ellman February 22, 2020 7:16 am


      Yes, lowering cost-basis when selling covered calls does protect in bear markets. We must be aware of ex-dates especially when the contract expiration is approaching to avoid possible assignment.

      Lowering cost-basis benefits us in all market conditions but it seems more meaningful in bear markets when share prices are declining and we are still above our cost-basis.

      Thanks for your generous comments.


  2. Ed February 22, 2020 4:23 am


    Do you prefer to start on the FRI of expiration for the next month or on MON/TUE/etc. of the next week?



    • Alan Ellman February 22, 2020 10:51 am


      Whenever possible, I roll my positions in the current month on expiration Friday and enter new positions for the following contract month on Monday or Tuesday after expiration Friday.


  3. Andy February 22, 2020 6:39 am

    Hi Alan,

    This is Andy from Iowa (halfway between Omaha & DesMoines). I bought your covered call and exit strategy dvds and am reading your exit strategies book now.

    I have a question about your Ask Alan videos that you have on youtube. Its the #3 video titled When you close your covered call position. My question is what is the cost basis if you did buy back the BLWD option with 5 days left until expir. Friday for a debit of $30. Is it 8240 or 8000?

    I think its 8240 (what he bought the shares at originally) because after you buy back the option you no longer have to sell the shares for $80 so it would be 8240 right? That calculates to a 2.06% return (170/8240). I know the cost basis for the initial trade is 8000 ($200/8000=2.5%) because that is the strike price so you would lose $30 buying the option back but Im a little unclear on what the cost basis is after you buy an option back when the strike price is less than the share price because if im wrong that would affect the adjusted return after buying the option back. If you could please let me know if im correct on this Id really appreciate it.

    Thanks Andy

    • Alan Ellman February 23, 2020 7:25 am


      Both cost-basis amounts are correct depending on the circumstances of the trade:

      Let’s review the trade:

      1. Buy BWLD at $82.40
      2. Sell the $80.00 ITM call at $4.40
      3. 2.5% initial time-value return with 2.9% downside protection
      4. Stock price at $84.50 5-days before expiration

      If we BTC the option at $4.80, $0.30 is time-value resulting in a 0.4% time-value cost-to-close, using $80.00 as our cost-basis. If we rolled the option, our cost-basis would also be $80.00. The intrinsic-value of the original option premium “bought-down our cost-basis from $82.40 to $82.00.

      Now, if we then sold the stock and wanted to view the entirety of the (now closed) trade:

      We have a $2.10 credit on the stock side ($84.50 – $82.40) and a $0.40 debit on the option side ($4.40 – $4.80) resulting in a net credit of $1.70 The net percentage return would be $1.70/$82.40 = 2.06%.

      In one scenario, we are evaluating the cost-to-close of on ongoing trade and in the latter, we are evaluating a closed trade over the life of that trade.


      • Andy February 23, 2020 5:08 pm

        Hi Alan,

        Ok thanks for clearing that up for me. I guess I would do what you said on this trade and wait 5 days to get the full 2.5% since its so far in the $ anyway. Would you roll this option or just let it be assigned?

        Lets say the time value drops to 10cents on ex friday so that would cost $10 to buy it back to roll it out or would you just let it be assigned?

        (or would you roll it out and up to say $85?- then you would get stock appreciation from 82.40 to 84.50 ($210) if the technicals looked good).

        I would think rolling it out and up would be the most profitable option if the tech. were good.

        thanks again

        • Alan Ellman February 24, 2020 6:31 am


          When we make our rolling decisions, step 1 is to make sure we want to keep this security in our portfolio for the upcoming contract period. In particular, we want to make sure that there is no upcoming earnings report.

          Let’s assume the stock still meets our system criteria. The next step is to use the “What Now” tab of the Ellman Calculator to determine if the initial time-value returns meet our stated goals. We check both rolling-out and rolling-out-and-up.

          Once we have this information, there will be clarity as to whether rolling is in our best interests.


          • Andy February 25, 2020 8:01 am

            Ok Alan, I’ll make sure to do those things. thank you. Andy

  4. Barry B February 22, 2020 8:59 pm

    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 02/21/20.

    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:

    Since we are in Earnings Season, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:


    The Weekly Report for 02/28/20 will be delayed. I am going to have surgery to replace my right shoulder joint on Monday, 02/24/20. My right arm will be in a specialized sling and that is the hand that I use to control my mouse. Every effort will be made to get the report out Monday, 05/02/20 or Tuesday, 05/03/20. In the event that I’m unable to use my hand, we will get out a report in a modified format.


    Barry and The Blue Collar Investor Team

    [email protected]

  5. Patrick February 23, 2020 1:29 am

    Hi Alan,

    I had a fairly nuanced question about when a stock gets assigned in CashSecuredPut trades.

    Having made a lot of real and paper CSP trades, I have noticed an inconsistency in assignment when a CSP trade closes at a barely ITM price.

    For example: I sold the 129 TXN put on Jan 22 and it closed at 128.52 on Friday: This ended up 0.37% InTheMoney (ITM) and resulted in stock assignment.

    – Other trades have resulted in a 0.5%, 0.4%, 0.2% ITM without being assigned.

    Does this assignment result rely solely on a random decision on the other end of the trade? OR, is there some wisdom you can share about how this assignment process works with slightly ITM trade results?



    • Alan Ellman February 23, 2020 5:05 pm


      The general threshold for assignment and exercise is $0.01 or more in-the-money but this can vary from broker-to-broker.

      There is also another factor and that is final pricing of the security that is used by the OCC is not determined at 4 PM ET when we can no longer execute any trades.

      Here is a link to an article I published that will shed some light on this topic…check out the paragraph titled “Exercise by exemption”:


  6. Denis February 23, 2020 5:19 pm


    1- After Friday February downsizing of the
    market, do you still favor OTM strikes
    2-to-1 compared to ITM strikes?

    2- What do you mean by : “I have all my
    20% BTC orders in place.”?

    Wish you the best.


    • Alan Ellman February 24, 2020 6:10 am


      I am monitoring the coronavirus situation as I type. The stock futures on Monday morning are down significantly. The question is will the fears of a pandemic quickly recover as they have in the past or will they continue?

      I am holding off on entering new positions until we have more clarity on this topic. For now, I am retaining the shares that are currently in my portfolios and not spending the cash generated from positions that were exercised over the weekend.

      In my view, once we are past the virus concerns, the market is well-positioned to continue its bullish ascent since March 2009. Where else can money be made both here and internationally? Also, we recently went through another positive earnings season.

      Emotion must be taken out of the equation and focus on system parameters becomes critical to our success.

      Once new positions are entered for the March contracts, I will enter buy-to-close (BTC) limit orders to buy back the short calls if share price declines. This is standard practice in the position management aspect of the BCI methodology.


  7. Charles February 23, 2020 9:49 pm

    Hi Alan ,
    I am a new subscriber and I have a question and may be it is a silly one :

    Lets say we own

    100 stocks of xyz 15 $ per share = 1500 $

    Can we
    1- sell a covered call strike price 16 $ ( same exp. date of the
    Sold put )
    2- sell put 14 $ ( same exp. date of the Call )

    3- buy put 13 or 13,5 $ for protection .

    Thanks ,

    • Alan Ellman February 24, 2020 6:25 am


      This is a good question… no such thing as a silly question here on the BCI site.

      Let’s assume we have approval for covered call writing and selling cash-secured puts. Yes, we can move forward with the trades you alluded to.

      We have a collar trade (Buy or own stock + sell covered call + buy a protective put) and a cash-secured put (sold put). In the latter trade, we will be required to set aside cash for possible future purchase of the shares. In this case, we must be prepared to increase our stock position with this security.

      For those who have a higher level of trading approval, the 2 puts can be tied together for a bullish put spread + a traditional covered call trade.

      For most retail investors, the 4 trades will usually be the former… a collar + a cash-secured put.


      • charles February 24, 2020 10:21 am

        Thank you Alan !


      • Charles February 24, 2020 10:36 am

        Thank you Alan !


  8. Ned February 24, 2020 3:33 am


    I currently own shares of ROKU at a cost of 142.94/share.

    (1) Can those shares cover the example in the first row, or must I have $11,910.00 in cash only?

    (2) Can the PUT strike (135) be higher than the Current Price of (119.35), as shown in the example above?

    (3) Must the PUT always be lower than the Current Price?



  9. Alan Ellman February 24, 2020 6:55 am


    Good questions.

    1. When we sell a put, we are undertaking the obligation to buy 100 shares of stock (per-contract) so any shares we already own cannot be used to secure that put unless we sell those shares and then provide the cash.

    2. We can sell a put strike higher than current market value (in-the-money) but this increases the chance of exercise and we must be prepared to buy those shares. Is this our intention? In the provided screenshot, the discount is quite small (0.21%).

    3. No, the put strike can be higher or lower although I predominantly use lower (out-of-the-money) strikes for puts. If our intention is to use puts to buy a stock at a discount as soon as possible, we may favor in-the-money puts (higher strikes).

    The put strike is determined by our strategy goals and initial time-value return goal range. As always, we must first master the 3-required skills (stock selection, option-selection and position management) before risking our hard-earned money.


    • Ned February 24, 2020 11:22 am

      Hi Alan,

      Gook morning and thank you for the quick response. This makes sense and helps reinforce your teaching. Your comments are greatly appreciated. Have a wonderful week.



  10. Other Steve February 24, 2020 8:03 am

    Hi Alan,

    With the subject of this article I thought it was a good time to ask about the 20/10% rule. In my limited experience I’ve seen that my trades would have gone a lot better by following this rule instead of hastily buying back on small price changes. I’m wondering if there is any specific math which found 20/10% to be ideal, or is it more of a common sense “sweet spot”? Thanks again for all of your excellent coaching.

    -Other Steve

    • Alan Ellman February 25, 2020 7:56 am


      I developed these guidelines over a period of years based on real-life trading in my portfolios. When I started teaching myself these strategies back in the 1990s, I realized that there would be frequent scenarios when closing the short call would be beneficial… but when?

      This question, along with a thorough understanding of how Theta impacts our option premium and risk, led me to try various percentage combinations. Some worked well, some not so much but ultimately the 20%/10% guidelines stood out as the most consistent combination that benefit our results in the long run.

      This is also one of the reasons that I am a firm believer that strategy protocol like the BCI methodology should be based on real-life trading rather than computer models.


  11. Hamish Maertens February 25, 2020 7:09 am

    Hi everybody,

    For those of you worrying about the corona virus and impact on your portfolio. I’ve already shared my investment success with Alan utilizing low-volatility stocks as the preferred vehicle to avoid being whipsawed in emotional behavior.

    Whenever I make my options decisions (LEAPs with covered calls to generate income and pay down my invested capital) I found that focusing on the weekly charts and adding capital to confirming bullish signals works best for me. I’m now looking to hit a double by buying back short calls on V, MA, SHOP… For instance, the weekly chart for MA is still very bullish so I’m not considering closing out this very profitable long-term trade entered in the first week of January. Stated differently, ignoring the noise is the best we can right now…

    So I just wanted to share with the BCI community how I’m looking at the market right now. XLU and XLRE are by far the best plays in this market environment. Increasing implied volatility across the board makes it very lucrative to pull the trigger on new trades.


  12. Homer February 26, 2020 1:11 am

    Hi Alan,

    Happy to report I am making progress. Placed 3 trades today my money.

    Here is my question for you. I saw a great video about using the watch list in the premium report to to scan for about 8 stocks that meet your port folio requirements. How do you get that done? In my case with a portfolio of about $17K, I need to work with stocks $30 k or less.



    • Alan Ellman February 26, 2020 5:59 am


      First, highlight stocks that meet your portfolio cash parameters. There are many ways to use the report from there. A popular approach is to focus in on stocks in bold and/or stocks with industry rank of “A” or “B”.

      Finally, check option-chains of eligible stocks and feed the information into the multiple tab of the Ellman calculator to assure that our initial time-value return goal range is met.

      That said, with $17k available, you will enjoy better diversification using securities from our ETF Reports.

      I would paper-trade until the current market volatility subsides.


  13. Ed February 26, 2020 3:25 am


    Due to the market turmoil and my beginner status, I executed a PAPER trade of about $52K worth of 5 ETF’s from the list on Monday this week for Mar 20 options.


    1. Should I have waited until the market (currently under Coronavirus jitters) settles down? I did notice that ROO was better on Monday than Friday when I started building my portfolio.

    2. GDXJ is down 6.3% already in one day (underlying stock.) The current market price on the option is $0.64, and the 80% point is $0.32, so it still has a little way to go until closing it out at the 80% point. In your Encyclopedia of Covered Call Writing, you mention that if at any point you believe the stock might drop a lot going forward, then close out both the option and the long stock position, and take losses. It is entirely possible, in my estimation, that we could have a significant further market drop this week, and even though GDXJ is generally defensive, it was down 6.3% in one day. Do you recommend holding through the chaos since these options are still one month out?

    3. I entered the GDXJ data into the UNWIND NOW tab of the Elite Calculator and saw a Net Loss to unwind (1 contract) of $194, which is a -4.3% return on the trade. The time value lost to close is $399, and percent lost to time value is -8.67%. Can you explain the time value lost to close? I’m uncertain how that figures into my decision about closing out the position.



    • Alan Ellman February 26, 2020 7:18 am


      1. When paper-trading, this is an excellent opportunity to experience trading during a market aberration under volatile and bearish circumstances. For beginners, I would avoid risking our hard-earned money during these conditions. I would continue to paper-trade through the current market status.

      2. We should have our position management skill set mastered such that we have an answer for how to proceed. Our 20%/10% guidelines are in place and we also keep an eye on closing when share value declines to a specific threshold, say 7% – 8% maybe up to 10%. In other words, a structured exit strategy plan will take emotion out of our trading.

      3. The “Unwind Now” tab generally applies to in-the-money strikes. It calculates the time-value cost-to-close and helps us to decide whether closing a winning trade makes financial sense. The calculator will deduct the intrinsic-value component of the ITM strike when rendering a cost-to-close figure. This does not apply in this case.

      I place my 20% buy-to-close limit orders immediately after entering my covered call trades. Based on your question information, you generated $1.60 initial premium. A BTC limit order at $0.30 – $0.35 is reasonable. I change the BTC limit order to 10% ($0.15 – $0.20) in the latter half of a contract).

      This is what we should focus in on at this point in time along with the 7% -10% threshold loss on the security side.

      Keep paper-trading through these unusual and all other market situations… good job.


  14. Hoyt T February 26, 2020 10:33 am


    Please give us an update on Barry. We have all been praying for a successful surgery and a speedy recovery.

    Hoyt T

    • Alan Ellman February 26, 2020 10:51 am

      Hoyt and BCI community,

      Barry is doing very well after his shoulder surgery. He would respond himself but his typing skills are limited for the near future.

      Thanks for your concern.


      • Hoyt T February 26, 2020 11:57 am


        Many thanks. Give him my best.

        Hoyt T

  15. Kevin February 26, 2020 10:54 am

    Dear Alan;

    I am a new member, as of last week and want to thank you for the personal return phone call. I cant wait to get my book I just ordered last night.

    But I have quick question; When doing in the money covered calls, Is open interest still a factor. If the probability exists that i will most likely be buying the call back? Also Do I have available to me some more specific information on the 20% and 10% rules and how to apply them?

    Thank you,


    • Alan Ellman February 27, 2020 6:15 am


      The open interest guidelines apply to all strikes (ITM, ATM and OTM)… 100 contracts of OI and/or a bid-ask spread of $0.30 or less. This will facilitate favorable price executions for our trades.

      After entering a trade, we place a buy-to-close (BTC) limit order at 20% and change to 10% in the latter half of the contract. As an example, if we sold the option for $2.00, we place a BTC limit order to close the short call at $0.40.Mid-contract, we change that limit order to $0.20. This information is detailed with real-life examples in the book you will be receiving.


  16. Alan Ellman February 26, 2020 9:58 pm

    Premium Members:

    This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site and is available in the “ETF Reports” section. Look for the report dated 2-12-2020.

    Also included is the mid-week market tone at the end of the report.

    For your convenience, here is the link to login to the premium site:

    Alan and the BCI team

  17. Charles February 26, 2020 10:21 pm

    Hi Alan !

    Is there any portfolio of open positions in your website ?

    If there is one , I would like to know how to get in , as I am a new member and still learning the different features and sections .

    I find the site amazing with interesting information and tools !

    Thank you for all your work and dedication !

    • Alan Ellman February 27, 2020 6:29 am


      On our premium member site, we provide 3 watch lists of eligible securities:

      1. Stocks: {Published weekly on weekends.

      2. Exchange-traded funds: Published weekly mid-week

      3. Blue Chip (Dow 30): Published monthly the week prior to contract expiration.

      The lists are based on a rigorous screening process specific for short-term option-selling. My team and I use these lists to fund our own portfolios.

      For those new to options, the current market environment represents a wonderful opportunity to paper-trade (practice in these unusually volatile conditions) but should wait for market calm before risking our hard-earned money.

      Thank you for your generous comments.


      • Charles February 27, 2020 12:18 pm

        Thanks a lot !

        Hope good recovery for Barry !


        Alan , it is a good idea may be to offer some hedge trades for any sudden shake in the markets ?!

  18. Doug February 27, 2020 11:53 am

    Hi Alan,

    Started selling covered calls on 2/13 and doing pretty well until the market crashed on Monday. Stuck it out until today, closing some calls for an additional profit, and then this morning decided to jump ship rather than try to play the crash. Happily, the premiums I made from the calls plus 1 day trade I made on a coronavirus diagnostic test allowed a small profit despite the crash.

    Thanks! Looking forward to getting back in when the market stabilizes.


    • Alan Ellman February 28, 2020 6:06 am


      Well-done. As long as market fundamentals remain strong, we should be in for a nice move up once we get past the coronavirus concerns.


  19. Alan Ellman February 27, 2020 2:11 pm

    BCI community:

    I just received this link from the Options Industry Council for my upcoming free webinar:


  20. Barry B February 27, 2020 4:28 pm

    Hi Hoyt,

    Thank you for following my progress. I’ll try my best to respond with one hand…
    let me apologize for the typos upfront 🙂

    The surgery was this past Monday morning. There was an unexpected problem that was not anticipated. When the surgeon started the procedure, he found that my rotator cuff was torn as well as the original “bone on bone” condition. This could have been a problem because there was the potential to have to do a “reverse” shoulder joint replacement. This would have meant that my range of motion would be reduced. Luckily for me, he was able to repair the rotator cuff and use a “regular” shoulder joint replacement procedure.

    So far, so good. The pain level is tolerable but I can’t do much with my arm until my two-week follow-up. Thank you, again, for your concern and good wishes.



    • Jay February 27, 2020 7:12 pm

      Hey Barry,

      Wonderful to hear that you are on the mend. Getting older sucks. Or as a friend of mine also in his 60’s with me says: “We are no longer the men we never were” 🙂

      An unprecedently ugly week has put me in the red YTD and I suspect I am not alone. Good thing I at least sold some options :). I actually sold more csp’s down under SPY 290 support today just in case that holds. Could be just spitting into the wind.

      Whenever the market gets weak in the knees Trump sends Larry Kudlow out there to say everything is fine and you should buy the dips. That did not work yesterday :).

      Speaking only for me these 10% plus corrections – even more on darling stocks – drive me nuts. But where else in this environment other than perhaps GLD and TLT is one to go?

      So we row on against the current. – jay

    • Hoyt T February 28, 2020 7:48 am

      Hey Barry,

      First, don’t try to type if it’s painful or stressful. We are so glad that the doctor was able to do the regular joint replacement.

      Second, as Jay said, we are all getting taken to the wood shed. I am thankful that late last summer I went to 30% cash. Wish it had been 100%. Basically just been selling put credit spreads since then. It has worked out fine until this week. Had to really scramble on Monday to close out short legs. Then I sold the long legs too soon.:) Had I held those I would have made out very well.

      Take care and best wishes for a speedy recovery. We are all pulling for you.

      Hoyt T

  21. Patrick February 28, 2020 1:15 am

    Hi Alan,

    I’m hopeful you would be willing to review my efforts to roll down a position given the crazy market right now and offer your opinion (if you can-this is not financial advise) as to wether I should stay in the fight or consider converting dead money to cash profits for another day.

    At the beginning of the current options month:

    Bought 100 LITE 87.02 = $8702
    STO 3/20 LITE 90C for 2.50


    BTC 3/20 LITE 90C for .45
    STO 3/20 LITE 75C for 4.09

    I calculate:
    250 for original STO
    Minus 45 BTC original
    Plus 409 STO 75 call
    Total profit $614

    Original stock cost 8702
    Minus current value 7753
    Total -949 stock costs
    +614 option profit
    -$335 loss at this point

    Question one. Do these calculations look right?

    I like to remove the cost of the BTC from the original STO then simply add the new STO profit to that difference. It appears you subtract the BTC value from the new STO profit in your book. Is it okay that I calculate it this way? Sorry for the excessive use of acronyms.

    My attempt here is to roll down for additional income because the buyback hit the 20% value but my paper loss in stock value is considerable.

    Question two. Do you have a specific percentage loss to stock value where you pull the plug, convert dead money to cash and live to fight another day? Like your book says, it feels like I’m riding a bike up hill lately.

    I hope my calculations are not too difficult to review. Thank you for your time and guidance. Have a great day!


    • Alan Ellman February 28, 2020 6:19 am


      Good job with the math. One small change: When the $75.00 call was sold, a share loss of $12.02 was locked in ($87.02 – $75.00), not $9.49.

      A good guideline when to sell the underlying is when share price declines 7% – 10%.


  22. Alan Ellman February 28, 2020 5:50 am

    Market update:

    We have seen this before. For those of us who have been in the market for the long-term, market corrections, although unpleasant, are no reason for dismay but should be dealt with head-on.

    The fear and panic created by the coronavirus outbreak has muted all the positive market fundamentals for the short-term (in my humble opinion). This virus is new and so fear of the unknown has taken hold. Once this situation is controlled, I firmly believe that we will return to the bull market we have enjoyed since march 2009.

    The key is to never panic and always take emotion out of our trading decisions. Those new to investing often move to cash and there’s nothing wrong with that as long as market re-entry at the right time is in the plans. Too many retail investors went to cash in 2008 and never returned.

    Now, I never tell others what to do but I’m happy to share my thoughts and strategy as what I’m currently doing in my (and my mother’s) portfolios. I plan to move to mostly cash before market close today and will give consideration writing calls on inverse ETFs after weekend analysis. These are securities that move up when markets move down. See page 6 of our premium member ETF Report for more information on inverse ETFs. I will also analyze this weekend’s stock report to see which, if any, stocks are performing well in these challenging circumstances.

    The good news is that market fundamentals are still positive. Just this week, durable goods orders, new home sales and the Case-Shiller home price index were all bullish. The dividend yield of the S&P 500 is greater than that of the 30-year Treasury. Once matters settle with the virus, where else is money going to flow but into US equities?

    One of the most difficult, yet beneficial, paths we can take is to remove emotion from the equation.


  23. joanna July 22, 2021 9:31 am

    Please disregard my last question about cash secured puts…my thinking was erroneous. -Joanna