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covered call writing exit strategies

Is This Trade a Winner or a Loser?: A Real-Life Example with XLE

Covered call writers must understand and evaluate the success (or lack thereof) of our trades. Simply stated, are they winners or losers? In June 2019, Van shared with me trades he executed with the exchange-traded fund (ETF), Energy Select Sector SPDR Fund (NYSE: XLE). He was trying to categorize his trade as a winner or […]

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Analyzing 4-Day and 2-Month Trades with XBI

Mario was generous in sharing his covered call writing trades with SPDR S&P Biotech ETF (NYSE: XBI). The trades were executed over a 2-month time-frame, the last of which was a 4-day Weekly option.   Mario’s trades with XBI 4/17/2019: Buy XBI at $84.95 4/17/2019 – 6/2019: Sell calls and “hit doubles” to lower cost-basis […]

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timing covered call trades

Timing Our Covered Call Trades: Lost Opportunity to Generate Cash with Facebook + Black Friday Discount through Monday

Our covered call options should be sold simultaneously with the purchase of our stocks. If we have evaluated a stock and have a bullish assessment for our covered call portfolio, we next check an option-chain to see if the initial time-value returns meet our goals ( for me, it’s 2% – 4% per month). By […]

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covered call writing calculations

Selling Deep In-The-Money Calls to Exit Stock Positions

Covered call writing is used predominantly to generate cash flow in a low-risk manner. But it can also be used to exit stock positions while mitigating losses in those trades. As an example, I will use a series of trades shared with me by Ashvin on May 16th, 2019. The underlying security was iShares MSCI […]

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Rolling Up in the Same Contract Month: A Real-Life Example with KMX

Position management or exit strategies for covered call writing and selling puts is the third required skill to achieve the highest possible return levels (stock and option selection are the first two). First, we must determine if an exit strategy opportunity actually exists and then, if so, which one to execute. On May 3rd 2019, […]

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exercise of options

Why Was My Short Out-Of-The-Money Put Exercised?

When we sell covered calls or cash-secured puts, we understand that if a strike ends up in-the-money at expiration, that option will be exercised over the weekend and shares will be sold or purchased depending on the option type (for calls, our shares are sold; for puts, new shares are purchased with the cash set […]

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reading an option chain

Converting a Covered Call Trade to a Collar Trade: An Analysis Using ALXN

When we sell and in-the-money or at-the-money strike and share price moves up substantially, we have an unrealized maximum return. On 4/5/2019, Doug wrote to me about such a situation he was in with Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN). He was considering buying a protective put to protect part of the unrealized profit and thought […]

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Can We Manage Our In-The-Money Strikes to Create a No-Risk Investment Strategy?

Covered call writing is a low-risk cash-generating strategy. It is not a no-risk strategy. As we become educated and master the 3-required skills (stock selection, option selection and position management), it is understandable why BCI members try to figure out strategies that can convert low-risk to no-risk. Here is a common inquiry I receive from […]

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covered call writing exit vstrategies

“Hitting a Double” with XBI: Earn $100 in Four Minutes

Position management (exit strategies) is one of the 3-required skills for successful covered call writing and put-selling. “Hitting a double” involves buying back the short call using our 20%/10% guidelines and then re-selling that same option when share price recovers. On 3/13/2019, Mario was kind enough to share with us his trades with SPDR S&P Biotech […]

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covered call writing with protective puts

Collar Trades When Call Strikes Move Deep In-The-Money: A Real-Life Example with TEAM

In August 2018, Duminda shared with me a successful collar trade he executed with Attlassian Corp (NASDAQ: TEAM). He was considering 2 exit strategies: Closing all legs of the trade and using the cash to enter a new position Allowing assignment and selling the put, if any value at expiration   Initial structuring of Duminda’s […]

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