Cash-secured put trades can be crafted to be traditional, aggressive or defensive, depending on the degree the put strike is out-of-the-money (OTM). In our BCI methodology, we almost always use OTM put strikes. This article will analyze a weekly defensive put trade with Tenet Healthcare Corp. (NYSE: THC) from 9/16/2024 to 9/20/2024.
Relationship between put strikes and degree of risk (of exercise) inherent in our put trades
- High risk: Very slightly OTM, near-the-money strikes with annualized initial returns > 50% (depending on implied volatility of the underlying security)
- Moderate risk: OTM such that annualized initial returns are approximately between 24% – 48%
- Low risk: Deep OTM put strikes with annualized initial returns between 10% – 20%
Use these percentages as guidelines, not as precise rules.
THC data taken from our BCI Weekly Stock Screen and Watch List (9/14/2024)
- THC: $163.49
- Industry: Medical
- Segment rank “A”
- Implied volatility (IV): 29.6%
- Weekly options are not available
- Next ER: 10/23/2024
- No dividend
- On balance volume: Bullish
- Mean analyst rating (MAR) = 1.43 (excellent)
- On BCI Watch List for 16 weeks
- $155.00 (deep) OTM 5-day put strike has a bid price of $0.45
THC initial calculations using the BCI Trade Management Calculator (TMC)
- The 5-day initial time-value return is 0.29%, 21.26% annualized (brown cells), slightly exceeding our goal of 10% – 20%
- The breakeven price point is $154.55 (yellow cell)
- If shares are put to us, it will be at a discount of 5.47% (purple cell) from the price when the trade was executed. This represents our 5-day protection or “insurance policy”
Closing price of THC on expiration Friday
Discussion
THC closed much higher than the deep OTM put strikes ($155.00) and the option expired worthless. This was a successful weekly defensive put trade that represented both low-risk and significant premium returns.
Stock Repair Calculator
What is the stock repair strategy?
- Own shares at a price higher than current market value (unrealized loss)
- Willing to forego potential profit in exchange for lowering the breakeven price point
- Not willing to add additional funds to the current losing position
- Instead of buying shares at the lower price to “average down”, an at-the-money (near-the-money) call option is purchased and funded by selling 2 out-of-the-money call options
- 2 long positions (stock and ATM or NTM call)
- 2 short positions (OTM calls covered by long positions)
- This action will lower the breakeven price point
- The strategy does not protect against additional downside loss
- The strategy does cap the upside
Click here for more information.
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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 publish several of these testimonials in our blog articles. We will never use a last name unless given permission:
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Alan,
In the email you sent to premium members on Wednesday evening, you stated that you are selling more aggressive options on a small percentage of your trades. Can you share how you select stocks for these trades?
Thanks a lot.
Jim (long-term member)
Jim,
Typically, I’ll select stocks that have the strongest technical signals with high industry segment rankings. When I sell multiple contracts with the same underlying security, I’ll frequently allocate both ITM and OTM calls and various put strikes. The stocks that are most likely to have more aggressive positions are the ones with the characteristics I just alluded to.
In my mailing to premium members this coming Wednesday, I’ll be including such an aggressive sample trade taken from one of my option portfolios which I’ll be executing tomorrow (Monday).
Stay tuned.
Alan
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 06/06/25.
Be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
https://www.youtube.com/user/BlueCollarInvestor
Barry and The Blue Collar Investor Team
Premium members:
This week’s 4-page report of top-performing ETFs, along with our sample trade of the week, has been uploaded to your premium site. The Select Sector SPDR section is now crafted to align with our streamlined (CEO) approach to covered call writing. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.
We have also included a sample trade taken from one of our BCI watchlists.
Premium member video link:
https://youtu.be/EXMO-KwZuJs
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://www.thebluecollarinvestor.com/membership.shtml
Alan and the BCI team
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 06/12/25.
Be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
https://www.youtube.com/user/BlueCollarInvestor
Barry and The Blue Collar Investor Team