Can We Generate Significant Profits Selling Weekly Covered Calls During a 4-Day Trading Week?

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Some members of our BCI community have expressed to me that meaningful income cannot be generated selling weekly covered call or put options during a holiday-shortened trading week. This article is designed to debunk that hypothesis, using a real-life example taken from one of my (CEO) portfolios.

What is the CEO strategy?

The CEO Strategy is a streamlined approach to covered call writing, where only the 11 Select Sector SPDRs (exchange-traded funds or ETFs) are used with limited exit strategy executions. In this article, I used the 5 best-preforming Select Sector SPDRs during the trading week from 12/26/2023 – 12/29/2023, 4-days.

Best-performing Select Sector SPDRs on 12/26/2023

• Spdr Real-Estate (XLRE
• Spdr Materials (XLB)
• Spdr Financials (XLF)
• Spdr Consumer Discretionary (XLY)
• Spdr Industrials (XLI)

Asset & cash allocation for this $100k portfolio based on the CEO spreadsheets (contracts sold)

• XLRE: 6 (monthly contracts, no weekly contracts for XLRE)
• XLB: 2
• XLF: 5
• XLY: 1
• XLI: 2

Screenshot from brokerage account showing final option sales (monthly XLRE divided by 4)

• 6 x XLRE contracts were sold at $0.36. I converted that monthly stats to $0.09 to simulate a weekly option ($54.00)
• 2 x XLB contracts were sold at $0.42 ($84.00)
• 5 x XLF contracts were sold at $0.05 ($25.00)
• 1 x XLY contract was sold at $0.37 ($37.00)
• 2 x XLI contracts were sold at $0.22 ($44.00)

Initial 4-day premium calculations based on a $100k portfolio

The total cash generated from the option sales was $244.00. Based on an investment of $100k (some of this was cash reserved for potential exit strategy executions), calculated to 0.24%. This annualizes to 12.7% based on a 52-week return. Since this was actually a 4-day return, the annualized expected initial return would be higher considering most weeks include 5-trading days.

Also, had individual stocks been utilized, greater returns would be expected since exchange-traded funds, generally, have lower implied volatility (and therefore lower option premiums) than individual securities.

Discussion

This article represents a real-life example of how, even during a holiday-shortened trading week, meaningful income can be generated using 4-day weekly options. The BCI methodology is all about hitting singles and doubles and not only focusing on grand slam home runs. Now, let’s all get on base.

BCI Expected Price Movement Calculator

The Expected Price Movement Calculator is designed to generate an approximate projected trading range for the underlying security, specific for selected contract expiration date. The at-the-money implied volatility (IV) of the stock or ETF (exchange-traded fund) is used to achieve this valuable information.

Inherent in the spreadsheet is a conversion formula that recalibrates the annualized IV stat into one specific for the contract being traded. Easily accessed option-chain data is entered into the white cells at the top of the spreadsheet and calculations will appear in the yellow cells below.

This tool will yield upper and lower ends of the trading range during the option contract being traded with an approximate 84% probability of accuracy.

To watch the video & purchase the BCI Expected Price Movement Calculator, click here.

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

Dear Alan, 

Thank you for all you do.  

I have felt a huge gratitude for all that you do for a while now.  

Then I learned about covered calls.  And then I told my financial planner, scared that he’d slam me for taking a stupid risk.   I mean, how could covered calls really be legit?   

Turns out he was also doing them and told me about you.   He’s a solid, sober, thoughtful financial planner and has been a steady guide.  Which is why, if he likes you, you must have the goods.    

In the past few months, I’ve had an amazing run.  And in the past couple, I’ve been using your list as the starting point to find some buy/writes.   (I’m not happy about my concentrations in tech, but I’m happy about the returns).   

I think what made me write today is the delay in this week’s list and your quick and laudable fixing of the issue and sending it out in time for tomorrow’s market. 

And even more than the list and your generosity in sharing your voluminous techniques and lessons, it turns out that perhaps your greatest value is just the attitude.  It’s positive, frames it in a beautiful way (‘Be your own CEO”), and has a can-do and active perspective on life and wealth.  It’s great.   

So now, I think I’ve found a way to generate sufficient income to keep my life going.  (I have little kids and private school tuition…)

And in case you’re interested, I’m using the financial stability from covered calls to avoid having to take a big nasty job.  In a few weeks I’m starting in a senior role at a hospice startup here in LA.  

To me, money is actually pretty worthless as a goal unto itself and the pursuit of the same has never been rewarding for me.  But freedom and meaning and the life it affords is amazing. 

So, thank you for all you do.   I am immensely grateful.

Anonymous (by request)

Upcoming events

1. Mad Hedge Stock Investor Summit (online event)

June 4, 2024

11 AM ET – 12 PM ET

Covered Call Writing: Multiple Applications Based on Current

Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

• Normal to bull markets
• Bear and volatile markets
• Low interest-rate environments

A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

Registration link to follow.

2. BCI-Only Webinar (Zoom)

July 18, 2024

Exit Strategy Choices After Exercise of Cash-Secured Puts

When we sell cash-secured puts, we are undertaking the contractual obligation to buy shares at the strike price by the expiration date. Typically, we only sell puts on elite-performers that we would be agreeable to own in our portfolio.

This presentation will analyze 4 potential exit strategy opportunities to consider should the put option be exercised. Information on the following strategies will be highlighted:

• Selling the stock
• Holding the stock in our long-term buy-and-hold portfolio
• Write a covered call (PCP or “wheel” strategy)
• Implement the Stock Repair Strategy

In addition to these strategies, the following topics will also be included in the webinar:

• Option basics for selling cash-secured puts
• Option basics for covered call writing
• Real-life examples
• Calculations using the BCI Trade Management Calculator (TMC)
• Event super discount offer

There will be information offered to all levels of options trades, from beginners to advanced.

Registration link to follow.

3. Investment Masters Symposium (live, in person event)

August 1, 2024

Presentation #1: 8:45 AM – 10:45 AM

Paris Hotel, Las Vegas

Covered Call Writing & Selling Cash-Secured Puts to Generate Consistent Cash Flow

Basic & advanced principles for trading low-risk stock options with capital preservation in mind

This presentation will detail stock selection, option selection and position management, the 3-required skills to become elite covered call writers and put-sellers. It will also include ultra-conservative approaches to these strategies using Delta and implied volatility to create statistically beneficial trades. Rules and guidelines will be discussed to take the emotions out of our trades resulting in high-probability positive outcomes.

Detailed analysis will be provided regarding how to craft our trades to the current market environment, personal risk-tolerance and strategy return goals.

A multi-tiered option-selling strategy which combines both covered call writing and selling cash-secured puts will also be examined. It is known as the PCP (put-call-put) or “wheel strategy.”

Attendees will be introduced to a one-of-a-kind trade management tool, the Trade Management Calculator, which is used to enter, manage and generate final realized and unrealized trade results.

The course is structured to benefit both beginner and advanced option traders, using real-life examples to enhance the learning process.

Presentation #2: All Stars of Option Trading Event

Registration details to follow.

4. Stock Traders Expo- live event in Orlando Florida

October 17 -20

Details to follow.