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Analyzing a 3-Income Covered Call Writing Trade: A Real-Life Example with Ready Capital Corp. (NYSE: RC)

Covered call writing with out-of-the-money (OTM) strikes provides the opportunity for 2 incomes streams, 1 from option premium and the other from share appreciation from current market value up to the OTM strike. Many of our eligible securities also generate quarterly dividends and trades can be established with 3-income stream potential. Such a trade was shared with me by Graham, using RC as the underlying stock.

 

Graham’s trades

  • 6/21/2022: Buy 2000 x RC at $12.08
  • 6/21/2022: STO 20 x 7/15/2022 $12.50 (OTM) calls at $0.15
  • 7/15/2022: RC trading at $12.40 and the $12.50 calls expire OTM and worthless (no exercise)
  • 7/29/2022: A $0.42 per-share dividend is captured, and shares are sold at $13.91

 

Price chart of RC showing the 3-income streams

 

RC: Covered Call Writing and Dividend Capture Price Chart

 

Final calculations for the 3 income streams per-share

  • Stock credit: $1.83 ($13.91 – $12.08)
  • Option credit: $0.15
  • Dividend credit: $0.42
  • Total net 3-income credit: $2.40
  • % 39-day return: 19.87% ($2.40/$12.08)
  • Annualized return: 186%

 

Discussion

Covered call writing is a low-risk cash-generating option-selling strategy. It can be crafted as a 1-income (ITM calls), 2-income (OTM calls) or 3-income (add dividends) potential strategy. This RC example was a winner in every way. When trades turn against us, we have our exit strategy arsenal to mitigate.

Nice going Graham and thanks for sharing.

 

Premium member live Zoom webinar: A streamlined version of covered call writing

New Book + 2 New Spreadsheets

 

For premium members:

  • Monday March 13, 2023 @ 8 PM ET
  • A Zoom invitation & link will be sent to all premium members prior to the event
  • Early order package discount coupons will be shared

 

Premium Member Benefits Video

This is a great time to join our premium member community with its stock screening and educational (over 200 videos) benefits. We offer more benefits than ever before. For information, click here.

For video explanation, click here.

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI teaemail 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:

Alan,

You’ve been very instrumental in my growth as a trader/student to build Covered calls as a foundation to other more complex strategies! I always enjoy your classes and love your very precise teaching style and your examples as they are always on point, and I always drink a couple of cups of coffee when I attend your classes that are always packed as there is always some new nuance or pearl I pick up. It’s always like drinking from a firehose! 🙂

Many thanks again,

Respectfully,

“Dr. Steve”

______________________________

Upcoming events

To request a private webinar for your investment club, hosted by Alan & Barry: [email protected]

 

1.A Streamlined Version of Covered Call Writing: Introduction to premium members

Monday March 13, 2023

8 PM ET

A Zoom invitation & link will be sent to premium members prior to the event.

Early order discount coupons offered.

 

2.Mad Hedge Investor’s Summit

Wednesday March 15th

11 AM ET – 12 PM ET

Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks

Increasing profits and avoiding tax issues 

Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.  Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.

Registration link click here.

 

3.NYC & Long Island Stock Traders Investment Groups

Thursday March 16th, 2023

7:30 – 9 PM ET

Selling Cash-Secured Puts: 4 Practical Applications

Topic related to multiple applications of selling cash-secured puts.

Selling cash-secured puts is a low-risk option-selling strategy which generates weekly or monthly cash-flow. This presentation will detail how to craft the strategy to multiple applications which will align with various goals and personal risk-tolerances. Topics included in the webinar include:

  • Option basics
  • The 3-required skills
  • 4-practical applications
    • Traditional put-selling
    • PCP (Put-Call-Put or wheel) Strategy
    • Buy a stock at a discount instead of setting a limit order
    • Ultra-low-risk strategies

Go to www.meetup.com/listmg

Click on join to become a member (Free membership)

Then click on RSVP (meeting is free) to obtain the ZOOM link.

 

4. Money, Markets, & Monetary Policy Virtual Expo 

April 11th – 13th, 2023.

Specific time, date, topic & description and registration link to follow.

 

5. Wealth365 Summit

April 17th – 22nd

Covered Call Writing Dividend Stocks to Create a 3-Income Strategy + A Streamlined Approach to Covered Call Writing

Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash-flow. By mastering the skill of strike price selection and adding dividend distributions, a potential 3-income strategy can be crafted with a goal of beating the market on a consistent basis.

Bonus topic: An introduction to the BCI streamlined approach to covered call writing creating a more user-friendly and time-efficient path to this low-risk option-selling program.

Topics covered in this webinar include:

  • Strategy analysis
  • Option basics
  • What is covered call writing?
  • Dividend distribution
  • Stock selection
  • Option selection
  • Trade management
  • NEW: A Streamlined Approach to Covered Call Writing

Real-life examples will be highlighted with Dow 30 stocks using option-chains and calculation spreadsheets.

Attendees will have the opportunity to participate in written Q&A during the entire webinar.

Specific time, date and registration link to follow.

 

6. Your Mid-Year Portfolio Review Virtual Expo 

June 27th – 29th, 2023

Specific time, date, topic & description and registration link to follow.

 

Alan speaking at a Money Show event

***********************************************************************************************************************

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.

8 Responses to “Analyzing a 3-Income Covered Call Writing Trade: A Real-Life Example with Ready Capital Corp. (NYSE: RC)”

  1. Bob February 25, 2023 2:04 am #

    Hello Alan,

    So in a report like this one (2/23) with no bold holdings, what do you select for options trades?

    Thanks

    Bob

  2. Alan Ellman February 25, 2023 6:47 am #

    Bob,

    The inflation data over the past 2 weeks increased the likelihood of additional interest rate hikes moving forward and this made the market nervous. The result was a market decline over the past week (still up 3.40% year-to-date) and a technical breakdown of most stocks and ETFs.

    When this occurs, there are very few “bold” stocks in our reports because it’s rare to find securities with all bullish technical indicators. However, the “nonbold” eligible stocks do represent the best of the best and are eligible for option selling.

    In addition to these nonbold but eligible stocks, we can turn to our ETF and Blue Chip (Dow 30) Reports.

    Certain market conditions can be challenging and there may not be a great answer, but there’s always a best answer.

    Alan

  3. Barry February 26, 2023 3:19 pm #

    Hello Alan.

    2 questions.

    1. When do you expect your discussion about SPDRS will come out?

    2. If one is selling weekly calls does this eliminate the possibility of other strategies?

    Thanks,
    Barry

    • Alan Ellman February 27, 2023 7:23 am #

      Barry,

      1. On Monday March 13th at 8 PM ET. As a premium member, you will receive an email invitation prior to the event with a Zoom link to attend a live webinar hosted by me and Barry. An introduction into this streamlined approach to covered call writing, along with an early order discount code.

      2. All of our strategies can be executed with weekly or monthly expirations. There are pros 7 cons to both weekly and monthly expirations. Each investor must make a decision as to which aligns best with their trading styles and goals. Both work.

      Alan

      • Barry February 27, 2023 8:33 am #

        Alan.

        What I really meant to ask is how do exit strategies apply to weekly options?

        Thanks again. Barry

        • Alan Ellman February 27, 2023 11:38 am #

          Barry,

          We use the same parameters as we do in the last 2 weeks of a monthly contract.

          We set 10% BTC GTC limit orders after entering our weekly trades. Our exit strategy choices are based on time-to-expiration.

          For example, if the 10% BTC limit order is executed, we favor (but not limited to) rolling-down or selling the stock to waiting to “hit a double”.

          I have written several articles showing how, in volatile market conditions, I was able to hit a double with 1 or 2 days to expiration.

          Bottom line: For weekly options, set 10% BTC GTC limit orders after entering a covered call trade.

          Alan

  4. Alan Ellman March 1, 2023 11:51 am #

    Covered Call Writing Online Video Course with Downloadable Workbook

    Updated & enhanced in 2023

    Discount coupons for early orders

    For the 4th time since its inception, BCI has updated and enhanced our covered call writing online video program and expanded the downloadable workbook. Our objective is to create the most comprehensive online course available anywhere and we hope you find that we have met our goal.

    Key additions to the new program include 56 slides dedicated to exit strategies and 19 slides dedicated to special circumstances including 2 ultra-low-risk approaches to covered call writing using Delta and Implied Volatility stats.

    Table of Contents

    Course Overview

    Option Basics

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    Option Selection

    Exit Strategies

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    Early order discount coupon (15% off total order)

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    Additional items can be ordered from the BCI store and the 15% discount will apply to the total order, including the “Best Packages” The offer expires 1 week from receipt of this notice.

    *** All members who previously purchased these programs will have access to the enhanced version at no additional charge using the same login parameters set up previously.

    Alan & the BCI team

  5. Alan Ellman March 1, 2023 5:05 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.

    New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.

    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

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