beginners corner

Ask Alan – When to Enter Your Covered Call Trades

Alan answers a question coming from Ron of Milwaukie, OR. Ron writes… "Will you enter a position when the market is in general decline, or when the futures are down and you know that the market will down at open? In other words, will you enter a position overnight or wait until the market has opened, and stabilized?"

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Posted on August 15, 2012 by in Ask Alan

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.
View all posts by Alan Ellman →

2 Responses to “Ask Alan – When to Enter Your Covered Call Trades”

  1. Stan Gardiner July 29, 2016 10:04 pm
    #

    Hi Allan,
    First off the Blue Hour was great! Thank you for this awesome addition to the best valued membership on the planet. Ok the introduction of the over writing concept had me out of my chair…OMG this is a cake eating scenario on steroids. Thank you so much for answering my Q on the program re strike prices. A thought jumped to mind; if, as in overwriting, your true intent is to never sell the dividend producing stock then the intrinsic value seems to take on a lesser role if I understand this correctly. Yes we must discount the stock in case of assignment but…if it is not assigned and we “keep” the stock then the return on investment for the premium would be significant, once the dust settles :-). It would take vigilance to make sure we are not assigned and yes I remember there is that rare risk, so appreciate that explanation, WhooAhh

    Thank you Again

    • Alan Ellman July 30, 2016 7:49 am
      #

      Stan,

      Yes, when portfolio overwriting, intrinsic value does take on a lesser role. In this specific approach we use only out-of-the-money strikes as our goal is to allow continued share appreciation and additional option income. This is different from traditional covered call writing when our portfolio is turning over frequently and we may use intrinsic value to protect time value in bearish or volatile market scenarios.

      When portfolio overwriting, if the strike is in-the-money as expiration approaches (option has intrinsic value) then we must role the option prior to 4 PM ET.

      Thank you for participating in the premium member community and your generous comments regarding our first Blue Hour webinar.

      Alan