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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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covered call writing calculations

Covered Call Writing with Only One Security

Diversification is one of the key common-sense requirements when selling covered calls or cash-secured puts. When using individual stocks, the BCI guidelines are a minimum requirement of 5 different stocks in 5 different industries where any one position cannot represent more than 20% of our entire portfolio.  We can use fewer securities when using exchange-traded […]

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covered call writing calculations

Strike Selection for Portfolio Overwriting Low Cost-Basis Stocks

Portfolio Overwriting is covered call writing using existing long-term buy-and-hold securities. It implies low cost-basis shares, dividend-bearing stocks and exchange-traded funds (ETFs). Since we don’t want our shares called away while generating additional option premium, cash flow decisions must be made on the best strike prices to select for our short calls. What is the […]

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option calculations

Establishing Our Option-Selling Goals: Total Portfolio Versus Individual Stock Perspectives

When selling covered call and put options we must first establish our initial time value return goals. We also should factor in upside potential when writing out-of-the-money call options and downside protection of those time value returns in bear and volatile markets. Do we accomplish these parameters based on our total portfolio returns or on […]

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Option Greeks

Buying Low and Selling High Also Applies to Option-Selling

Covered call writers hold two positions. We are long (own) the stock and short (sold) the call option. It is intuitive to investors that it is to our advantage if the stock price accelerates or at least does not decline in value. There are five possible outcomes in the stock portion of our trade: Stock […]

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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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Elite Version of Ellman Calculator

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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covered call writing calculations

Evaluating the Success of our Covered Call Trades

Whenever a covered call trade results in a maximum return, it is a successful trade…period…end of story. To most, this statement appears nonsensical and self-evident. But I’m here to tell you that there are a lot of covered call writers that question that success. In late December 2017, Paul shared with me a series of […]

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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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