beginners corner
Archive | Investment Basics RSS feed for this section

Portfolio Overwriting with Apple Computer (NASDAQ: AAPL)

Portfolio overwriting is a covered call writing alternative strategy. Our goals include increasing our returns by a modest amount while still retaining ownership of the shares. Deep out-of-the-money strikes are sold with specific annualized returns in mind, let’s say 6% for purposes of this article. Apple Computer is a widely held stock by many of […]

14 Comments Continue Reading →

Analyzing and Calculating a Multi-Leg Rolling-Down Covered Call Trade

Exit strategies for covered call writing will frequently allow us to convert losing trades to profitable ones. To corroborate this concept, a real-life example with Nike Inc. (NYSE: NKE) will be detailed.   Initial trade structuring On 6/22/2020, 200 shares of NKE was purchased at $97.72 2 July 17, 2020 $99.00 calls were sold for […]

34 Comments Continue Reading →

Automating the 20%/10% Guidelines

Position management is the 3rd required skill for achieving the highest level of option-selling success. One of the most important of the BCI protocols for covered call writing are the 20%/10% guidelines which assists us is closing short calls when those opportunities are presented. This allows us to mitigate situations when share price declines. These […]

49 Comments Continue Reading →

How to Use Technical Analysis and Market Assessment for Strike Selection Guidance

Strike price selection is the second required skill for our covered call writing and put-selling portfolios. Stock (and ETF) selection and position management (exit strategies) are the other two. This article will highlight how we can use overall market assessment and price chart analysis to help guide us to the best strike price selections.   […]

30 Comments Continue Reading →

Market Volatility and Our Option-Selling Trades: Using the VIX to Achieve Higher Returns

Options trading basics teaches us that the VIX or CBOE Volatility Index reflects the market’s expectation of the upcoming 30-day volatility. It measures market risk and is also known as the investor fear gauge. With this in mind, option-sellers are faced with a dilemma. Increased market volatility will translate into higher option premiums because the […]

49 Comments Continue Reading →
covered call writing calculations

Managing In-The-Money Strikes When Share Price Moves Higher

When we sell in-the-money call options, we are generating initial time-value profit that meets our stated goals plus creating downside protective of that time-value profit in the form of intrinsic -value. The disadvantage of these options is that we do not benefit from share appreciation because of our contract obligation to sell at the lower […]

30 Comments Continue Reading →

Risky Stocks Can Result in Challenging Decisions

Writing covered calls with high-volatility stocks will result in higher premiums. That’s the good news. These securities may also decline substantially below the strike price and cause option premium to pale in comparison to the share depreciation. That’s the bad news. What if these shares move up exponentially, leaving the strike deep in-the-money and we […]

30 Comments Continue Reading →

Reverse Stock Splits: Understanding Contract Adjustments

Contract adjustments to the terms of our covered call writing and put-selling options are due to corporate actions like mergers and acquisitions, special dividends and stock splits. This article will highlight the contract alterations resulting from a reverse stock split.   What is a reverse stock split? This is a reduction in the number of […]

29 Comments Continue Reading →

Myths and Misunderstandings About Covered Call Writing

Covered call writing education must include debunking the myths associated with this strategy. When certain concepts are repeated often enough, they become accepted as truths whether they are accurate or false. The purpose of this article is to refute five of the most egregious of these misrepresentations.   1. Covered call writing should be used […]

20 Comments Continue Reading →

Buyers Have Rights, Sellers Have Obligations: Covered Call Writing in a Nutshell

Covered call writers get paid cash when selling call options. Call buyers pay cash to own the options. This article will highlight the reasons options are bought and sold as it relates to covered call writing. We will use a real-life example with CarMax, Inc. (NYSE: KMX), a stock on our Premium Stock Report on […]

31 Comments Continue Reading →