beginners corner
Archive | Options Trade Execution RSS feed for this section

How to Execute a Covered Call Trade with a Buy/Write Combination Form

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 […]

18 Comments Continue Reading →

When Our Covered Call Strike Moves $1000.00 In-The-Money

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 […]

29 Comments Continue Reading →

How to Select the Best Strike Prices for Collar Trades: Real-Life Example with Advanced Micro Devices, Inc. (NASDAQ: AMD)

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 […]

31 Comments Continue Reading →

Poor Man’s Covered Call: Selecting the Best LEAPS Strike

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 […]

24 Comments Continue Reading →

Establishing Our Cost-Basis When Rolling Out-And-Up on 2 Different Days

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 […]

35 Comments Continue Reading →

Establishing Our Cost-Basis in a Multi-Step Managed Trade

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 […]

29 Comments Continue Reading →

Delta and Strike Price Selection

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 […]

32 Comments Continue Reading →

Exit Strategies are Important but Must Be Timed Properly + Free Webinar Link

Exit strategy execution for covered call writing and put-selling is the 3rd required skill needed to achieve the highest returns (stock and option selection are the other two). Knowing how and when to implement these position management trades will have a major impact on our ultimate success. In July 2020, Clark sent me a series […]

35 Comments Continue Reading →

Rolling-Down On a Sharp Market Decline at the End of a Contract

Exit strategy opportunities may be created when there is a substantial 1-day market decline and we must be prepared to take advantage of these occasions. In June 2020, there was an 1800 point decline in the Dow 30 due to coronavirus concerns and national unrest related to police shootings. Many members of the BCI community […]

22 Comments Continue Reading →

Special Cash Dividends and Equity Distributions: Understanding Contract Adjustments

Contract adjustments to the terms of our covered call writing and put-selling options are due to corporate actions like mergers and acquisitions, special dividends and stock splits. This article will highlight the contract alterations resulting from special dividends and equity distributions.   Special cash dividends: 2 adjustment techniques   1. Ticker remains unchanged Number of […]

14 Comments Continue Reading →