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covered call writing option

Increasing Capital Gains When Selling Stock: Another Use for Covered call Writing

Covered call writing is a low-risk option-selling strategy typically used to generate monthly cash flow. When we capture call premium into our brokerage accounts, we are lowering our cost basis thereby increasing the opportunities for successful trades. This strategy can also be crafted to increase our capital gains (or decrease capital losses) when we decide […]

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Rolling Out-And-Up And Then Stock Price Declines

Rolling our covered call trades involves multiple months of trading statistics. The calculations may be deceiving initially but on deeper analysis, rolling our options can represent an invaluable trading tool which enhances our overall returns. Some of our members have expressed concern when rolling out-and-up because the cost-to-close our near-month in-the-money call deducts the intrinsic […]

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covered call writing and dividends

Early Exercise Due to Dividend Capture: Theoretical and Practical Applications

When we write a covered call option we are obligated to sell our shares at any time from the option sale to contract expiration if the option buyer decides to take possession of our shares. This is because we are dealing with American Style options. European Style options (apply mainly to indexes, not stocks) can […]

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Factors to Consider When Closing a Trade Early: A Real-Life Example with ATVI

Exit strategies for covered call writing includes closing a trade when share price rises above the original strike price sold. When formulating these decisions, we must factor in the cost-to-close as it relates to the opportunity to generate more profit. On November 8, 2017, Marion shared with me a trade with Activision Blizzard, Inc. (NASDAQ: […]

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covered call writing and technical analysis

Position Management in the Final Week of a Contract: A Real-Life Example with FIVE

Exit strategy preparation and implementation is one of the 3 required skills for successful covered call writing and put-selling. Because of the time value erosion of our options (Theta), there are limitations regarding the exit strategy opportunities as our contracts near expiration. In January 2018, Duminda contacted me about a trade he executed with Five […]

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Is There Less Risk Using Deep In-The-Money Long Calls versus Covered Call Writing?

“There is less risk using deep in-the-money (ITM) long calls than buying stock and selling the corresponding short calls”. That is the case John made to me when I received his email in January 2018. As an example, John used a $100.00 stock and a call premium of $9.00. The basis of his theory was […]

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Rolling Down Our Put Positions: When and Why?

  Rolling Down Our Put Positions: When and Why? When selling cash-secured puts, our breakeven stock price is the (out-of-the-money) strike price less the put premium. Our exit strategy guideline as to when to close the short put (buy back the put) is when share value declines to more than 3% below the strike price. […]

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selling cash-secured puts

The Mysteries of a Put Sale

On 8/19/2017, Ron sent me an email detailing a cash-secured put trade he initiated in a virtual account. I saved the email to use in an article because I felt it would be instructive on several fronts.   Ron’s trade with Abiomed, Inc. (NASDAQ: ABMD)   8/10/2017: Sell August 17 $155.00 put (sale price not […]

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Technical Analysis Impacting Stock Eligibility for Option-Selling

Fundamental analysis, technical analysis and common sense principles comprise the 3-pronged approach used in the BCI methodology for screening for option-selling candidates. Technical analysis is the factor that changes most frequently and is the main reason a stock will get “bumped” from our Premium Stock Reports. In our 11/10/2017 Premium Stock Report, MKS Instruments (NASDAQ: […]

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covered call writing exit strategies

Rolling Out-And-Up: Explaining the “Bought-Up” Value of our Stocks

One of our covered call writing exit strategies is rolling out-and-up. This involves buying back (buy-to-close) the current in-the-money option and selling the later-date higher strike price. For example, we may buy back the October $50.00 call option and then sell the November $55.00 call option. We would consider such action if the expiring strike […]

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