Exit strategy opportunities for covered call writing must be recognized and acted upon when indicated. It is important to understand when and how to react to these situations and determine the best exit strategy, if any. In October 2020, Patrick shared with me a covered call trade he had executed and was considering closing the […]

Should I Roll-Out When My Option is DITM Mid-Contract?
Posted on April 10, 2021 by Alan Ellman in Covered Call Exit Strategies, Exit Strategies, Investment Basics, Option Trading Basics, Options Calculations, Stock Option Strategies

How to Execute a Covered Call Trade with a Buy/Write Combination Form
Posted on March 27, 2021 by Alan Ellman in Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution, Stock Option Strategies
Covered call trades can be entered by legging-in (2 separate trades) or via the buy/write combination form (1 net trade). When available, the latter is an effective, and perhaps cheaper, way to execute our covered call trades when the bid-ask spreads of our options are narrow. This article will explain how to use the combination […]

When Our Covered Call Strike Moves $1000.00 In-The-Money
Posted on March 20, 2021 by Alan Ellman in Covered Call Exit Strategies, Exit Strategies, Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution, Stock Option Strategies
This really happened. From March to August 2020, many of the large cap technology stocks were on fire. Thor shared with me a covered call trade he executed with Amazon.com, Inc. (NASDAQ: AMZN) where the strike moved $1000.00 in-the-money (ITM) as share price headed to the moon. As you read this article, see if you […]

Establishing Our Cost-Basis for Long-Term Holdings
Posted on March 6, 2021 by Alan Ellman in Covered Call Exit Strategies, Exit Strategies, Investment Basics, Option Trading Basics, Options Calculations, Stock Option Strategies
When we initiate a covered call trade by first buying a stock and then selling a call option, our cost-basis, in the BCI methodology, is the lower of the stock price or strike price. If we sell an in-the-money (ITM) strike, we deduct the intrinsic-value component of the option premium from the share price bringing […]

How to Select the Best Strike Prices for Collar Trades: Real-Life Example with Advanced Micro Devices, Inc. (NASDAQ: AMD)
Posted on February 27, 2021 by Alan Ellman in Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution, paper trading, Stock Option Strategies
Covered call writing is associated with 2 legs: we are long the stock and short the call option. If we add a protective put, we have converted the covered call trade to a collar trade which has both a floor (put strike) and a ceiling (call strike). The traditional collar trades uses out-of-the-money strikes for […]

Poor Man’s Covered Call: Selecting the Best LEAPS Strike
Posted on February 20, 2021 by Alan Ellman in Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution, Stock Option Strategies, Uncategorized
The Poor Man’s Covered Call (PMCC) is a covered call writing-like strategy where deep in-the-money LEAPS options are used in lieu of long stock positions. Short-term out-of-the-money call options are sold against the long position. The technical term is a long call diagonal debit spread. When setting up the initial trade, decisions must be made […]

Establishing Our Cost-Basis When Rolling Out-And-Up on 2 Different Days
Posted on February 13, 2021 by Alan Ellman in Covered Call Exit Strategies, Exit Strategies, Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution, Stock Option Strategies
One of our covered call writing exit strategies is rolling-out-and-up. We use this position management technique when our short call is in-the-money (ITM) as expiration approaches and we decide to retain the shares for the next contract month (or week). For example, had we bought a stock for $38.00 and sold the $40.00 call and […]

Spinoffs and Stock Splits: How Multiple Corporate Events Can Impact Share Price
Posted on February 6, 2021 by Alan Ellman in Fundamental Analysis, Investment Basics, Option Trading Basics, Options Calculations, Stock Investing
Our covered call writing and put-selling positions can be radically impacted by corporate events. In July 2020, Match Group, Inc. (NASDAQ: MTCH) showed extreme price volatility due to 2 corporate events, a spinoff and a stock split. Price dropped from $105.00 to $95.00. They also resulted in option contract adjustments. The loss was severe but […]

Establishing Our Cost-Basis in a Multi-Step Managed Trade
Posted on January 30, 2021 by Alan Ellman in Covered Call Exit Strategies, Exit Strategies, Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution
Covered call writing calculations are meaningful only when the correct stats are entered into our formulas (calculators). The cost-basis of a managed trade can be confusing as stock and option values are changing with each step of the trade series. In July 2020, Steve shared with me a series of trades he executed with KraneShares […]

Delta and Strike Price Selection
Posted on January 23, 2021 by Alan Ellman in Investment Basics, Option Trading Basics, Options Calculations, Options Trade Execution, Stock Option Strategies
Strike price selection is the 2nd of our 3-required skills for covered call writing and selling cash-secured puts. I am frequently asked which Delta to use as a guide to a specific strike price. In this article, we will review the factors that guide us to the most appropriate strike price and the role Delta […]
Podcast
- 52. Making Money Selling Options with Technology Stocks
- 51. Timing Our Covered Call Trades
- 50. Exit strategies Must Be Timed Properly
- 49. Analyzing a Multi Leg Covered Call Rolling Down Series of Trades
- 48. Rolling Deep OTM Cash Secured Puts
- 47. Rolling Up in the Same Contract Month
- 46. Should Delta Be the Sole Criteria for Covered Call Writing Strike Selection
- 45. Implied Volatility and Expected price Movement During the Life of Option Contracts
- 44. Can We Use ITM Strikes to Create a No Risk Covered Call Strategy?
- 43. Converting a Covered Call Trade to a Collar Trade
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