Mario was generous in sharing his covered call writing trades with SPDR S&P Biotech ETF (NYSE: XBI). The trades were executed over a 2-month time-frame, the last of which was a 4-day Weekly option. Mario’s trades with XBI 4/17/2019: Buy XBI at $84.95 4/17/2019 – 6/2019: Sell calls and “hit doubles” to lower cost-basis […]
Combining In-The-Money Strikes and Stock Dividends to Provide Protection in Bear Markets + Holiday Discounts
When establishing our covered call writing trades, we must factor in current market conditions to either add protection in bear and volatile environments or to take advantage of normal to bull market scenarios. On May 17, 2019, Mauricio sent me a diagrammatic strategy proposal that would lower the breakeven using an in-the-money (ITM) strike as […]
Making Money with Technology Stocks: Investing with QQQ
The exchange-traded fund (ETF) that has appeared most frequently in our premium member ETF reports is Invesco QQQ Trust (NASDAQ: QQQ). This fund consists of 100 of the largest non-financial companies (predominantly technology companies) that trade on the NASDAQ exchange. As of June 2019, the top 3 holdings in QQQ are Microsoft (MSFT), Amazon (AMZN) […]
In-The-Money Cash-Secured Puts: Allow Exercise or Roll the Option When Using the PCP Strategy?
As contract expiration nears, we must be prepared how to manage our in-the-money (ITM) cash-secured puts. Assuming we initially sold an out-of-the-money (OTM) put which is now ITM, share price has declined. We can assume that by following the BCI guidelines for position management, the current stock price is not more than 3% below the […]
Selling Deep In-The-Money Calls to Exit Stock Positions
Covered call writing is used predominantly to generate cash flow in a low-risk manner. But it can also be used to exit stock positions while mitigating losses in those trades. As an example, I will use a series of trades shared with me by Ashvin on May 16th, 2019. The underlying security was iShares MSCI […]
Implied Volatility and Expected Price Movement of our Stocks During the Life of a Contract
Implied volatility (IV) is directly related to the value of the premiums we receive when selling covered call and put options. The more volatile the underlying security, the greater the premium and risk exposure. I have written quite a bit about IV over the years and distinguished it from historical volatility (HV). This article will […]
Delta as the Sole Criteria for Covered Call Writing Strike Selection
Strike selection is the second required skill when writing covered call options or selling cash-secured puts. Over the years I have been asked to suggest a specific Delta for strike selection implying that this statistic would be the sole criterion to determine strike determination. This article will make a case why Delta, although important, should […]
Rolling Up in the Same Contract Month: A Real-Life Example with KMX
Position management or exit strategies for covered call writing and selling puts is the third required skill to achieve the highest possible return levels (stock and option selection are the first two). First, we must determine if an exit strategy opportunity actually exists and then, if so, which one to execute. On May 3rd 2019, […]
Rolling Deep OTM Puts to a Higher Strike: A Viable Mid-Contract Strategy?
After selling an out-of-the-money (OTM) cash-secured put and then stock price accelerates substantially, the put value will decline. Share price and put value are inversely-related. This allows us to take advantage of our 20%/10% put-selling guidelines exit strategy discussed on pages 141 – 143 of my book, Selling Cash-Secured Puts. With this exit strategy, if […]
Converting a Covered Call Trade to a Collar Trade: An Analysis Using ALXN
When we sell and in-the-money or at-the-money strike and share price moves up substantially, we have an unrealized maximum return. On 4/5/2019, Doug wrote to me about such a situation he was in with Alexion Pharmaceuticals, Inc. (NASDAQ: ALXN). He was considering buying a protective put to protect part of the unrealized profit and thought […]
