When crafting our covered call writing trades, we can do so aggressively, using out-of-the-money (OTM) call options, or defensively, using in-the-money (ITM) strikes. In this article, a real-life example with GigaCloud Technology Inc. (Nasdaq: GCT), will be used to analyze both approaches.

GCT trade information on 4/22/2024

• GCT trading at $35.63
• The 5/17/2024 $40.00 OTM call had a bid price of $2.25
• The 5/17/2024 $30.00 ITM call had a bid price of $6.90

GCT option-chain on 4/22/2024

• The $30.00 ITM strike, displays a bid price of $6.90 (brown cell)
• The $30.00 strike shows a Delta of 0.7716, approximating a 23% risk of the price dropping below the $30.00 strike. This is our risk factor of losing all or part of our initial time-value premium
• The $40.00 OTM strike shows a bid price of $2.25
• Note the IV (implied volatility) column shows IV > 100%, which explains the substantial premiums and risk associated with this security

GTC aggressive (OTM) initial calculations using the BCI Trade Management Calculator (TMC)

• The TMC calculates an initial 26-day return of 6.31%, 88.65% annualized (brown cells)
• There is also an opportunity of an additional 12.26% return (purple cell), if share price accelerates to or beyond the $40.00 strike at expiration
• The breakeven price point is $33.38 (yellow cell)
• This trade is most appropriate in normal – to- bull market environments

GTC defensive (ITM) initial calculations using the BCI Trade Management Calculator (TMC)

• The TMC calculates an initial 26-day return of 4.23%, 59.43% annualized (brown cells)
• There is no opportunity for additional share appreciation (purple cell), since we are agreeing to sell our shares at a lower price than current market value
• If the option is exercised and shares are put to us at the breakeven price point of $28.73 (yellow cell), we will have received a price discount of 15.80% (pink cell) from when the trade was entered
• This trade is most applicable in bear and volatile market environments or simply to mitigate the significant risk associated with high-IV stocks

Discussion

One of the many significant benefits of the covered call writing strategy is that we can craft our trades to bullish or bearish market environments. This also applies to constructing our trades based on personal risk tolerance. We should take advantage of these strategy opportunities and not use a “one size fits all” approach.

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Covered Call Writing Alternative Strategies

Portfolio Overwriting– using stocks in buy-and-hold portfolios.
The Collar Strategy– using protective puts.
The Poor Man’s Covered Call– using LEAPS options.
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Covered call writing is a cash-generating strategy that lowers our cost basis thereby improving our opportunities for successful investments. One of the many benefits of incorporating this strategy into our investment portfolios is that the system can be crafted to meet our trading style, market assessment, portfolio net worth and personal risk tolerance. This book details three such covered call writing-like strategies.

Click here for more information and purchase link.

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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 publish several of these testimonials in our blog articles. We will never use a last name unless given permission:

Hi Alan,

I attended your conference at the Money Show Masters in Las Vegas last month.  I want to thank you for all the information you provided and for letting me know about your service- I signed up for a membership after your class and am blown away by all of the great info and tools it provides.  

Robert

Upcoming events

1. Stock Traders Expo- live event in Orlando Florida2 Covered Call Writing Strategies

Dividend Capture and A Streamlined Approach

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Course outline

Part I: Option Basics & Covered Call Writing

Part II: Dividend Capture

• The 3-required skills for all option trading
  • Stock selection for dividend capture covered call writing
  • Portfolio construction: Diversification & cash allocation
  • Portfolio initial trade calculations
  • The Blue Chip (Dow 30) Report
  • Option selection
  • Trade management/ key dates
  • Why is early exercise so rare?
  • How to avoid early exercise?
  • The 20%/10% guidelines
  • Best stocks for covered call writing dividend capture

Short break/ Q&A

Visit us at Booth # 413

Part III: A Streamlined Approach: The CEO Strategy

Q&A

What is the CEO Strategy?

• What are exchange-traded funds (ETFs)?
• What are the Select Sector SPDRs?
• Exit strategies for traditional and CEO covered call writing
• Strategy goals
• Strategy advantages
• Who can benefit?
• BCI ETF Report
• CEO Calculations
• CEO exit strategies
• Summary
• Event offer: Our best- available during event only

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2. American Association of Individual Investors/ Los Angeles Chapter

November 9, 2024

12 PM ET – 1:30 PM ET

Private webinar for members of this AAII investment club

3. Young Investors Club: University of Central Florida

Wednesday November 13, 2024

Private investment club

4. BCI-Only Webinar

Zoom

Thursday November 21, 2024

8 PM ET – (:30 PM ET

Covered Call Writing Dividend Stocks

Details & registration link to follow.

5. Long Island Stock Investor Group Part I

Zoom

February 13, 2025

7:30 – 9:00 ET

Details to follow.

6. Las Vegas Money Show

February 17 – 19, 2025

details to follow.

7. Long Island Stock Investor Group Part II

March 13, 2025

7:30 – 9:00 ET

Details to follow.