When we structure our covered call trades in a defensive manner, we have 2 main goals in mind. We seek greater protection to the downside than traditional put trades and we strive for significant, although lower returns. We accomplish these goals by selling deeper in-the-money call strikes. We are sacrificing potential premium returns in exchange for greater protection from share price decline. These trades are particularly useful in bear, volatile and uncertain market conditions.
A Real-Life Example with Dutch Bros Inc. (NYSE: BROS): (6/2/2025 – 6/13/2025)
- 6/2/2025: BROS trading at $69.38
- 6/2/2025: STO the 6/13/2025 $63.50 call at $6.90
- 6/2/2025: BTC/GTC limit order at $0.69 (10% exit strategy guideline)
- 6/13/2025: BROS closes at $68.14 on expiration Friday, down $1.24 from purchase price
- 6/13/2025: Despite the share price decline, this was a successful trade
Broker confirmation of trades
Initial Covered Call Trade Calculations: BCI Trade Management Calculator (TMC)
- The breakeven price is lowered from $69.38 to $62.48 (yellow cell)
- Initial time value return is 1.61%, 48.86% annualized (brown cells)
- This return is realized if share value remains above the $63.50 strike
- BROS closes at $68.14 on expiration Friday (6/13/2025)
- Despite share price declining by $1.24/share, this was a successful trade
Discussion
- Significant returns can be generated with 12-day defensive covered call trade
- Option trades can be crafted to align with all market environments and personal risk tolerance
- In the case of BROS, a significant initial 12-day return was captured and resulted in a successful trade
Selling Cash-Secured Puts Basic and Advanced Principles
Selling Cash-Secured Puts is a 6-part Video Series + downloadable workbook. All aspects of Put-Selling including stock selection, option selection and position management. A huge section on exit strategies and a deeper dive into ultra-low risk approaches to selling cash-secured puts have been added to previous versions of this course. The Companion Workbook contains 111 all-color pages of all charts, graphs and slides. Download Table of Contents (PDF)
Click here for more information.
Free E-book on covered call writing
Use in conjunction with our Beginners Corner free video series on covered call writing (Free training link above)
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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:
Alan,
1. Money Masters Symposium Sarasota Florida
December 1 – 3,2025
Setting Up Option Portfolios Using Stock Selection, Diversification, Cash Allocation and Calculations
Analysis of 6 covered call writing trades
Minimize risk and maximize returns. These are our 2 main goals when crafting our option portfolios. There are several factors we can utilize which will put ourselves in an outstanding position to achieve these objectives. Here is a summary of those factors which will be addressed during this presentation:
- Select elite-performing stocks and ETFs
- Diversity stock positions as well as their industries
- Allocate a similar amount of cash per-position
- Ensure that initial calculations align with strategy goals and personal risk-tolerance
- Once trades are entered, go into position management mode- be prepared for exit strategy opportunities
Registration link to follow.
2. BCI Educational Webinar #9
Thursday January 15, 2026
8 PM ET – 9:30 PM ET
Topic, description and registration information to follow.
3. Long Island Stock Investors Meetup Group: Part I
Thursday February 12, 2026
7:30 PM ET – 9:00 PM ET
Topic, description and registration information to follow.
4. Long Island Stock Investors Meetup Group: Part II
Thursday March12, 2026
7:30 PM ET – 9:00 PM ET
Topic, description and registration information to follow.
Alan,
I bear markets, is it better to sell itm calls or otm puts? Both seem appropriate.
Thanks,
Jordan
Jordan,
You are correct … both will work.
I give a slight edge to deep OTM cash-secured puts (CSPs).
If share price declines precipitously, we can use our exit strategy arsenal to manage our trades and ultimately make an informed decision as to whether we will “allow” exercise. We may choose to close the trade prior to exercise and move on to a better performer.
If we do decide to allow exercise (in this worst-case scenario), we can protect ourselves further by selling ITM covered calls. Combining puts and calls is a strategy we call the Put-Call-Put or PCP strategy, also known as the “wheel” strategy outside the BCI community.
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 10/24/25.
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
Hi Alan,
I hope you’re doing well.
I’m trying to understand better your approach to strike selection when writing covered calls. From what I’ve seen in your materials, there doesn’t seem to be a direct reference to using delta as a factor in choosing the strike.
Please clarify whether delta plays any role in your strike selection process, or if your method relies entirely on other parameters (such as return goals, downside protection, or technical chart points).
Thank you in advance for your time and insight — I really appreciate it.
Best regards,
Nir
Nir,
When selecting strikes for covered call writing and cash-secured puts, the basis for our choice include overall market assessment (moneyness of the strike), initial time-value return goal range (for me 2% – 4%/month and 1/2 -1%/week) and personal risk-tolerance.
For example, if we are selling a covered call on a stock trading at $48 and have a positive outlook on the market, we would choose an OTM strike that aligns with our initial time-value return goal range. If the $50 strike generated a 2.5% monthly initial return, that would be an appropriate choice for me.
Our goal is not to achieve a specific delta, but, of course, our ultimate selection will have a delta assigned to it. That is our end point, not our starting point.
One exception to this guideline is when we do not want our options to be assigned and shares bought or sold. In these cases, we would favor low delta strikes that would translate to approximate probability of exercise equivalent to the option delta.
In the above example, if we didn’t want our covered call exercised and were willing to incur a risk of exercise up to 10%, we would select a strike with a delta of .10 or less.
Alan
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.
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https://youtu.be/EXMO-KwZuJs
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Alan and the BCI team
Hi Alan,
Thank you very much for your detailed explanation — that really helped clarify your process.
Just to make sure I fully understand the relationship between the time-value return goal and delta:
in your experience, do certain delta ranges tend to correspond with your 2%–4% monthly (or 0.5%–1% weekly) return target?
For example, when aiming for a 2%–3% monthly return, do you often find that the strike you end up choosing typically falls around a certain delta range (for instance, 0.30–0.40 for OTM calls or 0.60–0.70 for ITM calls)?
I’m asking because I’m trying to connect the income goal–based method with the probability–based view that delta represents, to refine my strike selection framework.
Thanks again for taking the time to share your insights — your approach makes a lot of sense and helps simplify the process.
Best regards,
Nir
Nir,
Implied volatility plays a large role in delta stats. This makes it challenging to give a definite delta range for a specific return goal range. You are providing reasonable average ranges for OTM and ITM strikes for these monthly and weekly returns, but 1 size does not fit all.
Therefore, unless avoiding exercise is critical to your strategy goals, I suggest focusing less on delta and mainly on time-value return goal range, the “moneyness” of the strikes and personal risk tolerance as well as overall market assessment.
I know there are several experts out there who stress using specific deltas when selling covered calls. I am not one of them, unless avoiding exercise is critical to one’s goals.
If your range is 2-4%/month, favor 2% if your market assessment is bearish or if your personal risk-tolerance is low. Favor closer to 4% if the opposite. The resulting strike will have an associated delta, but this is the end point, not the starting point and we will have selected a strike that aligns with our pre-stated goals.
Alan
Alan,
Will options still trade as 100 shares of stock after the change in SEC
round lot rules?
Thanks, Alex
Alex,
I am not aware of a direct impact to options.
The new rules are intended to provide more transparency on the stock bid/ask which might lead to improved markets on the options side, but I would consider this an indirect result from the new rules.
I haven’t heard much discussion on this, so I’ll run this by a few folks and let you know if I hear anything more interesting.
Alan