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Entering a covered call position

Exiting a Covered Call Position Prior to Earnings by Guest Author Laurie Itkin

JUST BECAUSE YOU BUY ITS PRODUCTS DOESN’T MEAN YOU SHOULD BUY ITS STOCK The KORS initial public offering was the topic du jour among my girlfriends at a holiday party last December.  The ladies I know who invest in stocks were trying to figure out how to get in on the IPO before the share […]

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Protective Puts

Protective Puts: Using The Collar Strategy During Volatile Markets

As safe a strategy as covered call writing is there is some risk; the risk is in purchasing the stock, not in selling the option. For this reason, some investors who sell covered calls also buy protective puts to alleviate some of the risk especially in volatile markets like we’ve experienced recently. Remember, the owner of […]

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Implied volatility over different strikes

Volatility Skew- Understanding Option Premiums Over Different Time Frames and Strikes

In covered call writing, our option premiums are influenced by the volatility of the underlying security. Using the Black Scholes option pricing model, we can calculate the volatility of the underlying by entering the market prices for the options. Common sense would seem to dictate that for options with the same expiration date, we expect the implied volatility […]

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Avoid earnings reports when selling covered calls

Mastering Covered Call Writing: Learning From Your Mistakes by guest author Laurie Itkin

Sophia Loren once said, “It’s better to explore life and make mistakes than to play it safe. Mistakes are part of the dues one pays for a full life.”  I presume she was speaking about love and romance rather than options trading, but her advice is sage in both situations. I follow Loren’s advice in […]

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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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