Covered call writing, when combined with protective puts, is known as the collar strategy. The maximum gain is established by the short call strike while the maximum loss is defined by the long put strike. For example, if a stock is purchased for $48.00 per share and the $50.00 call is sold while the $45.00 […]
Understanding the “Paid-Up” Risk When Rolling Out-And-Up: A Real-Life Example with FIVE
One of our covered call writing exit strategies when the strike is in-the-money on expiration Friday is rolling out-and-up. This is when we buy back the near-month call (buy-to-close) and sell the next month’s higher strike. There are times when share appreciation has dramatically increased above the near-month strike price such that buying back the […]
“Hitting a Double” Using a Lower Strike Price
One of the exit strategies for covered call writing that allows us to enhance portfolio returns is known in the BCI community as “hitting a double”. We implement this position management technique when option value meets our 20%/10% guidelines. The initial short call is closed (buy-to-close) as share value declines early to mid-contract and then […]
Multi-Leg Option Trades: Understanding Calculations and Results + HOLIDAY DISCOUNT CODE
Covered call writing involves a minimum of 2 legs: we are long the stock (own the stock) and short the option (sold the option). There are many times when we employ the position management skill and options are bought back and new options sold or our underlyings are sold. This adds additional legs to the […]
Evaluating an Initial Covered Call Writing Portfolio
Setting up our covered call writing and put-selling portfolios requires common sense analysis once our watch lists have been established. Considerations include proper stock and industry diversification, appropriate cash allocation to each position and. strike selection that will maximize our returns and reflect personal risk-tolerance and overall market assessment. In this article, I will dissect […]
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 […]
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 […]
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 […]
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 […]
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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Protective Puts and the Collar Strategy: Selecting the Best Strike Prices/ Last Chance for Holiday Orders
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Ask Alan #153 | Using Options to Mitigate Stock Price Losses
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Understanding the “Paid-Up” Risk When Rolling Out-And-Up: A Real-Life Example with FIVE
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“Hitting a Double” Using a Lower Strike Price
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Multi-Leg Option Trades: Understanding Calculations and Results + HOLIDAY DISCOUNT CODE
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The New Stock Market- Algorithmic and High Speed Trading
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Options That Expire Weekly and Conventional Expiration Cycles
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Why the 3% Guideline Applies to Puts but Not to Call Options
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Earnings Pre-Announcements Explained and Categorized
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Tax Implications of Writing Covered Calls against Long-Term Holdings
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Alan Ellman Premium members: Also added to the resource are
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Roni Jay, you describe it very well. It is a very to
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Jay Hi Roni, I might offer a different view about t
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