Exchange-Traded Funds – The Blue Collar Investor https://www.thebluecollarinvestor.com Learn how to invest by selling stock options. Sat, 17 Feb 2024 11:24:19 +0000 en-US hourly 1 Setting Up a Bullish Covered Call Writing Monthly Portfolio https://www.thebluecollarinvestor.com/setting-up-a-bullish-covered-call-writing-monthly-portfolio-2/ https://www.thebluecollarinvestor.com/setting-up-a-bullish-covered-call-writing-monthly-portfolio-2/#comments Sat, 17 Feb 2024 11:24:00 +0000 https://www.thebluecollarinvestor.com/?p=23868
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This article will highlight one of the many ways we can establish a monthly covered call writing portfolio during bullish market conditions. We will utilize a hypothetical portfolio of $100k and use 5 different securities, 3 stocks and 2 exchange-traded funds (ETFs).

Premium Stock Report for the November 2023 contracts (10/23/2023 – 11/17/2023)

  • FUTU, ZS and JBL are eligible securities in 3different industry segments.
  • No earnings reports are due prior to expiration of the November 2023 contracts.
  • All have adequate option liquidity (open interest- OI).

ETF (Exchange-traded funds) Report for the November 2023 contracts (10/23/2023 – 11/17/2023)

  • FXN and XOP are the 2 top-performing ETFs the week prior to the start of the November 2023 contracts.
  • Both securities have out-performed the S&P 500 over both the 1-month and 3-month time frames.
  • Both he stock and ETF reports are included in our BCI premium membership.

Cash allocation spreadsheet

  • The final portfolio setup spreadsheet displays the # of shares to buy and contracts to sell, while allocating a similar amount of cash to each position.
  • There will be a cash balance of $1739.00 for potential exit strategy opportunities.

Initial portfolio and trade calculations using The BCI Trade Management Calculator

  • Initial time-value returns range from 1.37% to 4.09% for the 5 positions (brown cells).
  • Annualized initial returns range from 19.23% to 57.48% for the 26-day trades (brown cells).
  • These are initial returns. Final returns can be higher or lower.
  • Since all strikes used were out-of-the-money (OTM), upside potential ranged from 1% to 6.04% (green cells).

Discussion

Setting up a high-quality covered call writing portfolio, involves several considerations. Here are some:

  • Stock and ETF selection based on sound fundamental, technical and common-sense principles.
  • Adequate security diversification.
  • Adequate cash allocation.
  • Strike selection based on overall market assessment, personal risk-tolerance and chart technical parameters.

There are many other ways to establish our portfolios for each contract cycle. This article provided an example which utilized many of the critical principles we can employ to ensure the highest possible returns. Keep in mind, this publication did not address position management, the 3rd required skillset needed to achieve the highest possible returns.

Click here for a related video.



Stock Investing for Students: A Plan to Get Rich Slowly and Retire Young

This is Alan’s financial literacy book (not option-related), currently used in 4 universities in the US.

Self-investing starting at a young age can ensure a successful financial future and an early and comfortable retirement. So why is nobody doing this? The answer includes such factors as the social pressures facing our youth, certain pre-conceived ideas regarding our ability to successfully self-invest and the education or lack thereof needed to motivate our youth to undertake such a long-term project. The purpose of this book is to change that way of thinking and create a goal and a user-friendly methodology that will facilitate a plan which will allow you to retire financially secure at a relatively young age.

Click here for more information and purchase link.


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:

(From Courtney after explaining the BCI PMCC trade initialization formula):

Hi Alan,

It finally clicked. This is what happened to me in December with SMH and X. They both accelerated rapidly and I’m going to close them out. I really like the PMCC method, since I have a smaller account but was a little foggy with calculating my [possible total profit available.

Thank you again for your guidance and support!

Courtney

Upcoming events

1. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) Strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

Register here.

2. Mad Hedge Investor Summit

Tuesday March 12, 2024

11 AM ET – 12 PM ET

Free registration link to follow.

Covered Call Writing Dividend Stocks to Create a 3-Income Strategy

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.

Topics covered in this webinar include:

  • Strategy analysis
  • Option basics
  • What is covered call writing?
  • Dividend distribution
  • Stock selection
  • Option selection
  • Trade management

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 chat box Q&A during the entire webinar.

A deeply discounted comprehensive package of educational products and tools will be offered in the final minutes of the webinar.

3. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

4. BCI-Only Webinar

Thursday April 11, 2024

8 PM ET – 9:30 PM ET

Topic, description and free registration information to follow.

All questions related to covered call writing and cash-secured puts will be answered in real time after the webinar presentation.

5. Stock Traders Expo- live event in Orlando Florida

October 17 -20

Details to follow.

Alan speaking at a Money Show event********************************************************************************************************************
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Sector Rotation and the CEO Strategy https://www.thebluecollarinvestor.com/sector-rotation-and-the-ceo-strategy/ https://www.thebluecollarinvestor.com/sector-rotation-and-the-ceo-strategy/#comments Sat, 06 Jan 2024 11:37:34 +0000 https://www.thebluecollarinvestor.com/?p=23591
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In 2023, BCI introduced the CEO Strategy, a streamlined approach to covered call writing using the Select Sector SPDRs. This article will explain why sector rotation in our business cycle will create opportunities for this strategy to beat the market on a consistent basis. First, some definitions.

What is the CEO Strategy?

This is an acronym for Combining Exchange-Traded Funds with Stock Options. The database of over 8000 securities is reduced to 11 and the number of exit strategies available for covered call writing is reduced from 14 to 4. Each month or week, we select the top 4 or 5 to populate our covered call writing portfolios.

What are the Select Sector SPDRs?

These are exchange-traded funds (ETFs) that divided the S&P 500 into 11 index funds and managed with the objective of matching the price and yield performance of their underlying sector indexes. Historically, these sectors will out- or under-perform depending on the stage of the current business cycle in our economy.

What is the business cycle?

Fluctuations in Gross Domestic Product (GDP) explain the expansion and contraction of economic activity that an economy experiences over time.

Top-performing Select Sector SPDRs during each phase of the business cycle reflecting sector rotation

Recession:

  • XLP: Consumer staples
  • XLU: Utilities
  • XLV: Health Care

Recovery:

  • XLRE: Real Estate
  • XLY: Consumer Discretionary
  • XLB: Materials

Expansion:

  • XLK: Technology
  • XLF: Financials
  • XLRE: Real Estate

Slowdown:

  • XLV: Health Care
  • XLP: Consumer Staples
  • XLF: Financials

Discussion

Selecting our best performing Select Sector SPDR ETFs each week or month allows our portfolios to become populated with securities that align with the current business cycle. Although there are no guarantees, this does enhance our opportunities to beat the market on a consistent basis especially while we lower our cost-basis when selling covered call options.



Poor Man’s Covered Call Calculator

The PMCC Calculator is designed to determine initial trade structure and status as well as various position management price point considerations and the exit strategy price buyback points to buy back the short calls based on the 20%/10% guidelines detailed in the BCI books and Online Video Programs. The spreadsheet comes with a user guide.

Cells are provided to enter the option month and current date, used to assist with the calculations. There are 5 tabs incorporated into this calculator. The image above shows the 1st tab for trade initialization.

Click here for more information and a detailed video.


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:

Hi Alan,

Thank you for sending the recording of the excellent Cash-Secured Put Class today. 

I have been selling option contracts using the BCI methodology since June. I really appreciate how clearly you explain the concepts by giving real life examples step by step so that even a nervous investor like me could understand and follow. 

Thank you so much for your help. 

Best regards,

Faye

Upcoming events

1. BCI-Only Webinar: Portfolio Overwriting

Thursday January 11, 2024

8 PM ET – 9:30 PM ET

You can register here, now (click on this link).

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.

Topics discussed

  • Brief review of covered call writing
  • Option basics
  • What is an option-chain?
  • Option selection
  • Calculating covered call returns: Real-Life examples
  • Portfolio overwriting defined
  • Pros and cons of portfolio overwriting
  • Why early exercise is so rare
  • Rolling options
  • Role of dividends
  • Locating ex-dividend dates
  • How to avoid early exercise
  • Real-life examples with calculations
  • BCI Portfolio Overwriting Calculator
  • BCI Trade Management Calculator
  • Summary

You can register here, now (click on this link):

2. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

3. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) Strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

4. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

Alan speaking at a Money Show event*********************************************************************************************************************
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How to Manage Near-The-Money Put Strikes as Expiration Approaches https://www.thebluecollarinvestor.com/how-to-manage-near-the-money-put-strikes-as-expiration-approaches/ https://www.thebluecollarinvestor.com/how-to-manage-near-the-money-put-strikes-as-expiration-approaches/#comments Sat, 11 Nov 2023 12:12:02 +0000 https://www.thebluecollarinvestor.com/?p=23306
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Many option traders who sell cash-secured puts prefer not to take possession of the underlying shares. Typically, when a trade is structured, the strike is out-of-the-money (OTM- lower than current market value). Exercise will occur when the share price moves below that (once) OTM put strike, rendering it, now, in-the-money (ITM). During the contract, if share price declines significantly, we have an arsenal of exit strategies to mitigate potential losing trades. This article will focus in on real-life examples taken from one of my portfolios on 6/15/2023 when 2 of the strikes were near-the-money and I didn’t want to take possession of the 2 Select Sector SPDR exchange-traded funds (ETFs).

Real-life examples with SPDR Health Care (XLV) and SPDR Consumer Staples (XLP)

  • 5/15/2023: STO 1 XLV 6/16/2023 $131.00 put at $1.22 (XLV trading at $132.19)
  • 5/15/2023: STO 4 XLP 6/16/2023 $74.50 puts at $0.67 (XLP trading at $76.28)
  • 6/15/2023: Prior to the market closing the day before expiration, both positions were closed at net option credits

Brokerage screenshot on 6/15/2023 showing BTC trade executions

Trade Management Calculator (TMC) showing initial and final calculations

  • Section #1 shows initial trade setups
  • Section #2 shows breakeven price points (yellow cells), initial & annualized 33-day returns (brown cells)
  • Section #3 shows post-adjusted total dollar ($312.00) and % returns (0.86% and 0.68%- purple cells)

Rationale for action taken the day prior to expiration

To avoid potential exercise, 5 contracts were closed late in the afternoon for a total cost of $81.30. I could have waited until Friday and paid a lower time-value premium to close but there, also, would have been the risk of paying a higher intrinsic-value component if share price declined deeper ITM.

Discussion

If avoiding exercise is an inherent requirement in our cash-secured put strategy (it may not be for some of us), exit strategy management is critical and may include buying back the put options as exercise approaches. When this strategy is executed, it will be at a net option time-value credit.



Alan Ellman’s Selling Cash-Secured Puts

Using stocks and stock options to develop a low-risk, wealth-building strategy for retail investors. Selling puts is a strategy similar to, but not precisely the same as, covered call writing. Mastering either strategy is a huge opportunity for retail investors to secure our financial futures. Mastering both will allow us focus in on the best investment choices depending on market conditions and personal risk tolerance.

FOR ADDITIONAL INFORMATION AND PURCHASE LINK, 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:

Hi Alan and Barry,

As I’m going through the Ask Alan videos, they have been very useful. You’ve covered a lot of questions I had.  It’s a great teaching tool and you’re a great teacher! 

Thanks,

John

Upcoming events

1. Mad Hedge Investor Summit

December 5 at 11 AM ET – 12 PM ET

Tuesday December 5, 2023

11 AM ET – 12 PM ET

Using Both Covered Call Writing and Put-Selling to Generate Monthly Cash Flow

Investing with Stock Options

Hosted by Dr. Alan Ellman, President of The Blue Collar Investor Corp.

Barry Bergman, BCI Managing Director

Selling stock options is a proven way to lower our cost-basis and beat the market on a consistent basis. Two such low-risk strategies are covered call writing and selling cash-secured puts. This presentation will detail how to incorporate both strategies into one multi-tiered option-selling strategy where we either generate cash-flow or buy a stock at a discount. I refer to this as the Put-Call-Put (PCP) Strategy, also referred to as the wheel strategy.

The basics and pros and cons are discussed as well as a real-life example and introduction into the BCI Trade Management Calculator (TMC). This seminar is appropriate for those who look to generate modest, but consistent, returns which will enable us to beat the market on a consistent basis while focusing on capital preservation.

Registration link to follow.

2. Long Island Stock Traders Meetup Group

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Details to follow.

3. Las Vegas Money Show & Stock Traders Live In-Person Event

February 21 – 23, 2024

Details to follow.

Alan speaking at a Money Show event*********************************************************************************************************************
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When Should I Take My Profits with a Successful Covered Call Writing Trade? https://www.thebluecollarinvestor.com/when-should-i-take-my-profits-with-a-successful-covered-call-writing-trade/ https://www.thebluecollarinvestor.com/when-should-i-take-my-profits-with-a-successful-covered-call-writing-trade/#comments Sat, 09 Sep 2023 10:34:19 +0000 https://www.thebluecollarinvestor.com/?p=22393 Which %, if any, of our original covered call writing initial time-value return, should we use to close both legs of the trade, and guarantee a realized return? 60%? 75%? Higher? Lower? Closing both legs of a covered call writing trade mid-contract is known as the mid-contract unwind (MCU) exit strategy, in our BCI methodology.

On April 5, 2023, Brad shared with me a series of trades he executed with Communication Services Select Sector SPDR Fund (NYSE: XLC) when using BCI’s CEO Strategy.

Brad’s trades with XLC

  • 3/21/2023: Buy 300 x XLC at $55.91
  • 3/21/2023: STO 3 x 4/21/2023 $57.00 calls at $1.30
  • 4/5/2023: BTC 3 x 4/21/2023 $57.00 calls at $2.00
  • 4/5/2023: Sell 300 shares of XLC at $58.30

Questions from Brad

  • How to calculate final returns?
  • Did implementing the MCU make sense?

BCI Trade Management Calculator: Entries, Adjustments, Initial & Final Calculations

XLC: Initial and Final Calculations

Note the following results with the Trade Management Calculator:

  • Yellow cell: Breakeven price point
  • Brown cell: Initial 31-day time-value return
  • Purple cell: Upside potential if XLC moves up to, or beyond the $57.00 strike price
  • Red oval area: Final security sale price
  • Red arrows: Final % option loss & final % stock gain
  • Pink cell: Final realized net % gain

Time-value cost-to-close

The trade was initially structured with a 2.33% initial time-value return and a potential additional 1.95% from share appreciation for a max return of 4.28%. The final realized return after implementing the MCU exit strategy was 3.02%, resulting in a time-value cost-to-close (CTC) of 1.26%.

BCI guideline when to implement MCU

We ask ourselves if we can generate at least 1% more than the time-value CTC, 1.26% + 1% = 2.26% or more by contract expiration. If yes, then MCU is appropriate. If no, we continue to monitor the trade.

***Note: We can also use the Unwind Now worksheet tab at the bottom the TMC spreadsheets to calculate time-value cost-to-close.

Discussion

The initial return was 2.33% and now we are seeking an additional minimum return of 2.26%. Using a security (ETF) of this nature with much less time-to-expiration, makes this goal unlikely. We would have to move to a more volatile security which would not align with the original CEO strategy. Rather than using a specific % return to close, evaluate the time-value CTC and measure that against the probability of achieving a greater return by contract expiration with a new covered call trade.

Premium member benefits video

https://youtube.com/watch?v=EXMO-KwZuJs%3Ffeature%3Doembed

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:

Good afternoon, Alan,

As a premium member, I must say that your service is one of the easiest to learn and the most profitable, if followed closely. For this, I thank you for your efforts.

Best regards,

William

Upcoming events

1. Mad Hedge Investors & Traders Summit

Covered Call Writing Blue-Chip Stocks and ETFs

September 13, 2023

12 PM ET

Zoom event:

Covered call writing is a low-risk option-selling strategy. The degree of our liability is directly related to the implied volatility of the underlying securities. Growth and technology companies tend to create greater exposure to the downside than blue-chip companies like those located in the Dow 30 and S&P 500. However, the former will generate higher premium returns. Only you can decide which underlying securities are most appropriate for your portfolios.

This presentation will review option basics, highlight covered call writing and demonstrate a methodology to select the best-performing Dow 30 and S&P 500 securities to facilitate the implementation of our option-selling and cash-generating strategies.

Real-life examples will be presented using recent BCI Premium Stock and ETF reports.

Real time Q&A via chat box questions will be available throughout the entire webinar.

Register for free here.

2. Orlando Money Show Live Event

45-minute workshop: Monday October 30th 2:10 PM ET – 2:55 PM ET

Selling Cash-Secured Puts and Strategy Choices After Exercise

2-hour MoneyMasters Class: Tuesday October 31st 9:30 AM ET – 11:30 AM ET

How to Master Covered Call Writing:

A detailed start-to-finish analysis using real-life examples.

Details & Registration information here.

3. AAII Orange County, California Chapter

AAII Investment Club members only

Saturday November 11, 2023

Details to follow.

Alan speaking at a Money Show event*********************************************************************************************************************
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Application of the 20%/10% Guidelines for ITM & OTM Strikes + Registration Form for Thursday’s Webinar https://www.thebluecollarinvestor.com/application-of-the-20-10-guidelines-for-itm-otm-strikes-registration-form-for-thursdays-webinar/ https://www.thebluecollarinvestor.com/application-of-the-20-10-guidelines-for-itm-otm-strikes-registration-form-for-thursdays-webinar/#comments Sat, 06 May 2023 01:56:53 +0000 https://www.thebluecollarinvestor.com/?p=21948 One of the key methods to partially automate our covered call writing exit strategy arsenal is to place buy-to-close (BTC), good until cancelled (GTC) limit orders to close our short calls based on our BCI 20%/10% guidelines. We instruct our broker to buy back the short call if the value reaches 20% (in the 1st half of a monthly contract) of its original sale value or 10% in the last 2 weeks of a monthly contract. Option value will decline as share value declines (Delta) and as time passes during that contract (Theta). For example, if we sold a covered call option for $2.00, we’d place a BTC GTC limit order to buy back that option if value decreased to $0.40 in the 1st half of a monthly contract and $0.20 in the last 2 weeks of that contract.

I am frequently asked if those guidelines are based on the time-value component of the premiums only or if intrinsic-value (IV) should be included in the calculations for in-the-money (ITM) strikes. This article will detail a real-life example with XLE which will demonstrate why the 20%/10% guidelines apply to the entire premium of ITM strikes.

 

Real-life example with Energy Select Sector SPDR Fund (NYSE: XLE – an exchange-traded fund or ETF)

  • 11/25/2022: XLE trading at $92.21
  • 11/25/2022: The $89.00 ITM strike has a bid-price of $4.95
  • The time-value component of the $89.00 strike is $1.74
  • Do we base our 20%/10% guidelines on $4.95 or $1.74?
  • 11/25/2022: The $95.00 OTM strike has a bid price of $1.77
  • The $95.00 strike is all time-value and therefore will be the basis of our 20%/10% guidelines

 

XLE option-chain on 11/25/2022

XLE Option-Chain for ITM and OTM Strikes

  • Brown cells: The $89.00 (ITM) strike has a bid price of $4.95 and a Delta (amount a premium price will change for every $1.00 change in share price) of 0.68
  • Yellow cells: The $95.00 (OTM) strike has a bid price of $1.77 and a Delta of 0.38

 

Initial trade calculations using the BCI Trade Management Calculator

 

XLE: Initial Covered Call Calculations

 

  • 22-day and annualized returns are practically identical (bottom left of screenshot)
  • Yellow cells: Breakeven price points
  • Brown cell: The $95.00 OTM strike offers 3.03% of upside potential (share appreciation up to the OTM strike price)
  • Purple cell: The $89.00 ITM strike offers 3.48% downside protection of the initial time-value profit

 

What is breakeven?

This is the price point at which there is no gain or loss. It is the price of the underlying security at the time of the trade minus the entire option premium.

 

Delta calculations to the 20% guidelines

We take the difference between the original premium and the 20% amount and then divide by the Delta. This will provide an approximation of how much share value must decline to trigger the breach of the 20% guideline. Below is a spreadsheet I created to reflect these calculations for the $89.00 strike using both time-value only and the entire premium as well as calculations for the $95.00 strike.

 

20%/10% guidelines as they relate to breakeven (IV = intrinsic-value)

 

20%-10% Guidelines and Breakeven Price Points

 

  • Typically, the 20% guideline will be breached when share price dips slightly below the breakeven price, giving us opportunities to mitigate the small losses or even turn losses into gains
  • By using the entire premium (time-value + intrinsic-value) for ITM strikes and not just time-value, we will close the short call at a higher share price

 

Discussion

The 20%/10% guidelines will assist in automating our exit strategy implementation when share price declines. The 20% guidelines are changed to 10% prior to the final 2 weeks of a monthly contract. When using ITM call strikes, we base our 20%/10% guidelines on the entire option premium.

 

BCI Community live Zoom webinar May 11th: A streamlined version of covered call writing: Register here.

 

New Book + 2 New Spreadsheets

Previously shared with premium members and now with the entire BCI community. For those with busy schedules who seek to generate cash flow and beat the market on a consistent basis in a user-friendly and time-efficient manner. A “don’t miss” presentation.

  • Thursday May 11th at 8 PM ET
  • Reduce the # of stocks (ETFs) considered from 8000+ to 11
  • Reduce the # of exit strategy choices from 14 to 4
  •  Registration form below
  • Our platform allows 500 attendees
  • Special offer to those registered and attending the live event
  • Login a few minutes early to ensure a seat
  • To ensure a spot, fill out the registration form by clicking here:

 

Premium Member Benefits Video: This is a great time to join our premium member community with its stock screening and educational (over 250 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,

Thank you for your punctual reply.

You have been blessed with a style that the reader becomes absorbed in your knowledge. YOU ARE BLESSED, DO NOT EVER STOP!!

Sam Z.

______________________________

Upcoming events

 

1.BCI total community

Covered Call Writing: A Streamlined Approach (CEO Strategy introduction)

Thursday May 11,2023

8 PM ET

Zoom login link will be provided to 1st 500 attendees.

Alan Ellman is inviting you to a scheduled Zoom meeting. 

Topic: Covered Call Writing: A Streamlined Approach: Live Webinar

Time: May 11, 2023 08:00 PM Eastern Time (US and Canada) 

To ensure a spot, fill out the registration form by clicking here.

 

2. Mad Hedge Investor Summit

June 14th at 11 AM ET – 12 PM ET

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. Your Mid-Year Portfolio Review Virtual Expo 

June 27th – 29th, 2023

 

4. Wealth365 Investor Summit

July 10th -11th

Details to follow.

 

Alan speaking at a Money Show event***********************************************************************************************************************
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Understanding the Math When Rolling ITM Covered Calls Out-And-Up: A Real-Life Example with Utilities Select Sector SPDR Fund (NYSE: XLU) + Save the Date May 11th https://www.thebluecollarinvestor.com/understanding-the-math-when-rolling-itm-covered-calls-out-and-up-a-real-life-example-with-utilities-select-sector-spdr-fund-nyse-xlu-save-the-date-may-11th/ https://www.thebluecollarinvestor.com/understanding-the-math-when-rolling-itm-covered-calls-out-and-up-a-real-life-example-with-utilities-select-sector-spdr-fund-nyse-xlu-save-the-date-may-11th/#comments Sat, 15 Apr 2023 10:31:29 +0000 https://www.thebluecollarinvestor.com/?p=21890 All strategies, including covered call writing and selling cash-secured puts, have their pros and cons. The same holds true for the exit strategies associated with them. Several of our members have written to me over the years regarding a “can’t lose” portfolio overwriting strategy that will return 1% – 2% per-month by selling out-of-the-money (OTM) calls and rolling the options out-and-up when the calls are expiring in-the-money (ITM). This article will highlight a real-life example with Select Sector SPDR Utilities (NYSE: XLU) showing an option-chain that will meet the stated initial time-value return goal range and factor in Delta to determine the probability of needing to roll the option out-and-up (probability of expiring in-the-money at expiration).

 

XLU (an exchange-traded fund or ETF) covered call writing trade

  • 11/2/2022: Buy 100 x XLU at $67.26
  • 11/2/2022: STO 1 x 12/2/2022 $70.00 call at $0.79
  • 11/2/2022: The $70.00 call strike shows a Delta of 0.30
  • Does the premium meet our stated goal?
  • What is the probability of the strike expiring with intrinsic-value or ITM?
  • What is the potential impact of rolling-out-and-up on our 1% – 2% monthly returns?

 

XLU option-chain on 11/2/2022

XLU Option-Chain on 11/2/2022

The Delta of the $70.00 strike reflects an approximate probability of the strike expiring ITM 30% of the time or 3 – 4 months out of a calendar year for monthly expirations. This means rolling the strike out-and-up fairly frequently to retain the out-of-the-money trade status.

 

The BCI Trade Management Calculator

 

XLU: Initial Trade Calculations

 

The red arrows show a 31-day initial time-value return of 1.17%, 13.83% annualized. This meets our stated initial time-value return goal range of 1% – 2% per-month. The blue arrow shows that an additional 4.07% can be realized if share value moves up to and beyond the $70.00 strike. This means that if there is a need to roll-out-and-up, this month’s return would be 5.24% (1.17% + 4.07%). Based on the Delta stat, there is a 30% probability of this occurring.

 

What is the impact of rolling out-and-up?

To generate a 1-month return of 1% – 2% for XLU, the $70.00 OTM strike would do the trick. Note the Delta is 30, a 30% chance of exercise without exit strategy intervention. When this occurs, to roll-out-and-up, we do so at an option debit so that will impact overall returns.

At expiration, if the strike is ITM, the cost-to-close is the intrinsic-value of the premium + a few pennies of time-value. Let’s say XLU is trading and $72.00, the cost-to-close may be $2.05. Rolling out-and-up will generate a much lower premium. If we allow exercise and sell the shares at $70.00 and buy on Monday at $72.00 (if shares are still the same price), the debit is $2.00, $0.05 less but rolling the option protects us against further share acceleration on market open. An alternative approach if we want to generate more protection is to use a lower Delta strike (deeper out-of-the-money) and settle for lower premiums … we can’t have both.

 

Why this is not a “can’t lose” strategy

When share price accelerates past the out-of-the-money strike ($70.00, in this example), we will win nearly every time as we factor in upside potential as we roll out-and-up. However, if share price declines below the breakeven price point, we start to lose money or, at least, devalue the initial time-value return.

 

Discussion

There are no “can’t miss” strategies that seek to generate higher than risk-free returns. Rolling-out-and-up to an out-of-the-money (OTM) strike will typically result in an option debit but capture increased share value. When portfolio overwriting securities which we want to retain in our long-term buy-and-hold portfolios, we must balance the returns we receive and the strikes we select. Deeper OTM strikes with lower Deltas, will provide greater protection from the need to roll-out-and-up but also generate lower returns. Each investor must determine the sweet spot that aligns with one’s personal risk-tolerance and strategy goals.

 

BCI Community live Zoom webinar: A streamlined version of covered call writing

 

New Book + 2 New Spreadsheets

Previously shared with premium members and now with the entire BCI community. For those with busy schedules who seek to generate cash flow and beat the market on a consistent basis in a user-friendly and time-efficient manner. A “don’t miss” presentation.

  • Thursday May 11th at 8 PM ET
  • Reduce the # of stocks (ETFs) considered from 8000+ to 11
  • Reduce the # of exit strategy choices from 14 to 4
  • A Zoom link will be sent to all on our mailing list and posted on this blog in a few weeks
  • Our platform allows 500 attendees
  • Login a few minutes early to ensure a seat

 

Premium Member Benefits Video

This is a great time to join our premium member community with its stock screening and educational (over 250 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:

Hi Alan!

I cannot thank you enough for your work.

I already have 4 of your books and the number 5 is on its way. It’s so exciting!

Have a great day!

Denis

______________________________

Upcoming events

To request a private webinar for your investment club, hosted by Alan & Barry: info@thebluecollarinvestor.com

 

1. Wealth365 Summit

April 18th

10 AM – 11 AM ET

Covered Call Writing Dividend Stocks to Create a 3-Income Strategy 

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
  • Q&A

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.

Register here.

 

2.BCI total community webinar plus Q&A

Covered Call Writing: A Streamlined Approach (CEO Strategy introduction)

Thursday May 11,2023

8 PM ET

Zoom login link to follow for 1st 500 attendees.

 

3. 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

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Reverse Covered Call Writing: A Reasonable Bear Market Strategy? A Real-Life Example with SPDR S&P ETF Trust (NYSE: SPY) https://www.thebluecollarinvestor.com/reverse-covered-call-writing-a-reasonable-bear-market-strategy-a-real-life-example-with-spdr-sp-etf-trust-nyse-spy/ https://www.thebluecollarinvestor.com/reverse-covered-call-writing-a-reasonable-bear-market-strategy-a-real-life-example-with-spdr-sp-etf-trust-nyse-spy/#comments Sat, 03 Dec 2022 11:32:48 +0000 https://www.thebluecollarinvestor.com/?p=21438 Covered call writing is defined as first purchasing or already owning the underlying security and then selling the corresponding call option. By doing so, we are protected; we know our cost-basis. A BCI member proposed to me an extreme bear market strategy where a deep out-of-the-money (OTM) call is sold first and if the stock appreciates significantly, against market trend, we can buy that security prior to the strike moving in-the-money. This article will analyze the pros & cons of such an approach.

 

Real-life example with SPY

  • 6/17/2022: SPY trading at $365.40
  • 6/17/2022: The $400.00 deep OTM 7/18/2022 call shows a bid price of $1.56 per-share
  • 6/17/2022: Sell the naked call first and plan to purchase SPY if the price appreciates near the $400.00 strike

 

BCI Trade Management Calculator showing initial returns at the current and $400.00 price points

 

SPY: Reverse Covered Call Writing Calculations

 

The annualized returns whether shares are purchased or not, are between 4% and 5% (brown cells).

 

Strategy advantages

  • In a bear market, holding long positions can result in significant losses
  • Selling low-Delta, deep OTM calls have low probability of exercise

 

Strategy disadvantages

  • The upside is the premium generated for a deep OTM call strike which, by definition for a security like SPY, would be miniscule
  • If we are forced to buy the security as price approaches the deep OTM strike, the % return would be similarly miniscule, even a bit less (brown cells for 1st 2 bullets)
  • Naked option trading requites a higher level of trading approval that most retail investors would have a difficult time obtaining

 

An alternative consideration

Sell deep OTM cash-secured puts that generate a pre-defined initial time-value return goal range because we know our cost-basis in advance (the cash required to secure that put trade). In this case, if the trade does turn against us and share price declines below the put strike, shares are purchased at a discount from when the trade was initially executed.

 

Discussion

There are many ways to craft our option-selling portfolios in extreme bear market conditions. Naked option selling is not appropriate for most retail investors even with a plan to purchase the underlying should the trade turn against us. In addition, it would be difficult to receive approval for such trading.

 

Holiday discount coupon

holiday15-1

Good for all items in the BCI store and for our Best Discounted Packages

 

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:

Hi Dr. Ellman!

Many thanks and it was an honor and pleasure meeting with Barry and yourself.

The presentations clarified a great deal and will help me better focus on the methodology and effect it more profitably.

Also, thanks for the TMC Package; the spreadsheet/calculator is exactly what’s needed.  My hand-written calculations were getting tedious.

I look forward to future interactions with you, Barry, and your entire Team.

Art

 

Upcoming events

To request a private webinar for your investment club, hosted by Alan & Barry: info@thebluecollarinvestor.com

1. Mad Hedge Traders and Investors Summit

Thursday December 8th at 12 PM ET (registration link to follow)

Free virtual webinar

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 as a key requirement. This presentation will demonstrate how the strategy can be crafted to succeed in all market environments.

Market situations highlighted are:

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

This webinar will include specific methods to set up ultra-low-risk paths to set up trades with 84%+ probability of success.

Register here.

 

2. Long Island Stock Traders Meetup Group (Private webinar)

Analyzing a 1-Month Covered call Writing Portfolio from Start to Finish

Thursday February 16,2023

7:30 PM ET- 9 PM ET

A real-life example with a $100k ETF Select Sector SPDR portfolio
Covered call writing is a low-risk option-selling strategy that generates weekly or
monthly cash flow. This presentation will demonstrate how to implement this
strategy using a database of only 11 exchange-traded funds for a 1-month option
contract cycle. These are real-life trades taken directly from one of Dr. Ellman’s
portfolios with screenshots verifying each trade. A final monthly contract result
compared to the performance of the S&P 500 will be calculated.

Topics included in this webinar:

 What are the Select Sector SPDRs?
 How to establish a covered call writing portfolio
 What is the role of diversification?
 What is the role of cash allocation?
 Calculating initial returns
 Analyzing each trade in the monthly contract
 Final results
 Next steps

 

Alan speaking at a Money Show event

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Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

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