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Delta rises as strikes go deeper in-the-money

Delta and Our Covered Call Writing Decisions

When studying option trading basics and the Greeks we learn about our exposure to risk. Those of us who study options are constantly reading and hearing that delta, one of the Greeks, is one of the most powerful influences over option value. Because of this, I thought it prudent we discuss this subject in greater detail. Definition: Delta […]

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Explaining "pinning the strike"

“Pinning the Strike”: A Covered Call Writing Consideration

When considering covered call exit strategies on or near expiration Friday we compare the market price of our stock to the strike price sold. If the share value is even one penny above the strike, the option will most likely be exercised and our shares sold. We may not want this to occur and we […]

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Covered call writing and put selling

Put Selling and Covered Call Writing

When studying option trading basics we learn that to be in a “covered” position we must first purchase the stock before selling the option for the strategy of covered call writing. Some investors will execute both parts of the trade by using a buy-write combination form and using a net debit order. Another approach to […]

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Calculating strike selection returns

Selecting The Best Strike Price

In last week’s article concerning option trading basics I highlighted the in-the-money strike in our covered call writing strategy. In this article I will expand our options calculations to all three types of strike prices. First, let’s review each of these categories: Out-Of-The-Money-Strike Prices: There is a reason why these are  popular strikes for many investors. […]

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EBAY chart showing a mixed technical picturene

In-The-Money Strikes and Covered Call Writing

Option trading basics incorporates fundamental, technical and common sense decisions. One of these, as it relates to covered call writing, is selecting a strike price for the short options position. In bearish and volatile markets I tend to favor the in-the-money strike. Before I address this matter, let’s review the pros and cons of each […]

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Covered Call Writing: Should We Use Stop Loss Orders?

Exit strategy execution is critical to maximizing our covered call writing success. But what approach should we use if the underlying equity declines in value? Many investors use a stop loss order when a stock they own declines in value. The question then becomes is this the best approach for covered call writing? There are […]

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Implied Volatility and Our Covered Call Writing Premiums

What makes some stock option premiums worth so much more than others? Let’s say we have two stocks, A and B. Both are trading @ $25/share. We look to sell the same month at-the-money $25 strike and one (stock A) returns 2% and the other (stock B) 4%. WHY? The answer lies predominantly in the mysterious […]

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Greeks: Factors that Influence our Covered Call Premiums

We have all heard the term “the Greeks” as it applies to stock options. Most of us know that these factors somehow explain how certain parameters can impact the value of an option premium. To avoid facing some members of the BCI community claiming that “this is all Greek to me”, this article will serve as […]

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Out-Of-The-Money Strike Prices: Pros and Cons for Covered Call Writing

Whenever a study is performed on covered call writing a stock is selected and the nearest out-of-the-money (O-T-M) strike price is sold. This is repeated over and over and then the results are compared to the overall market performance. The usual conclusion is that covered call writing slightly outperforms the overall market but with much […]

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Open Interest and Volume plus Non-Standard Options

As covered call writers, we have all looked at options chains.  That’s where we determine how much cash will be generated into our accounts when we sell our options. It’s fun! We first inspect the current price of the underlying security (stock or ETF). Then we check out the closest strike prices (I-T-M, A-T-M and […]

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