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Collar Calculations: Adding Protective Puts to our Covered Call Trades

Covered call exit strategies play a major role in mitigating losses in our BCI methodology. In most cases, we can keep losses to a minimum, turn losses into gains and enhance profits as well. Some covered call writers want the security of protecting against a catastrophic gap-down which can occur rarely. With the current market […]

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covered call writing exit strategies

Comparing the Cost-to-Close with Initial Trade Goal

When we enter our covered call trades, we make our stock and option selection based on our initial time-value return goal (2% – 4% for 1-month expirations in my case). If the strike moves deep in-the-money as share price accelerates, we may consider closing both legs of the trade or rolling the option out or […]

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poor man's covered call calculations

Protective Puts and The Poor Man’s Covered Call

The Poor Man’s Covered Call (PMCC) is a covered call writing-like strategy where the underlying security is a LEAPS options (1 -2 years expirations) rather than the stock itself. The technical term is a long call diagonal debit spread. Since the cost of the option is lower than the price of the stock, the return […]

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Comparing ITM Calls and OTM Puts in Bear Markets

Covered call writing and selling cash-secured puts are both outstanding low-risk strategies that can outperform the overall market on a consistent basis. I am on record as favoring covered call writing in normal to bull markets and include put-selling in bear markets. In normal to bull markets, covered call writing gives us the flexibility to […]

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covered call writing calculations

Realized Versus Unrealized Capital Gains: A Real-Life Example with GWRE

Covered call writing calculations include initial and final computations. Since our trades incorporate both long stock and short option positions, it can become confusing when determining final capital gains (losses). In July 2019, Ralph shared with me a covered call trade he executed with Guidewire Software, Inc. (NYSE: GWRE). He sold an out-of-the-money (OTM) strike […]

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covered call writing exit strategies

Should I Unwind My Covered Call Trade 1 Week Prior to Contract Expiration?: A Real-Life Example with Alibaba Group

Covered call writing exit strategies are critical to our overall success. There are times, however, when the best action is no action at all. On July 25th 2019, Rob shared with me a successful trade he executed and was considering closing 1 week prior to the 8/2/2019 expiration. For an answer, we need to turn […]

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Rolling Decisions on Expiration Friday: A Real-Life Example with Veeva Systems

Position management is the 3rd required skill for our covered call writing and put-selling success. On 7/19/2019, Larry shared with me a series of trades he executed with Veeva Systems Inc. (NYSE: VEEV). He astutely “hit a double” and was now looking to roll the option to the following month.  Larry’s trades and inquiry (in […]

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covered call writing exit strategies

Evaluating Stock Purchase Price and Breakeven When Rolling Out-And-Up

When we write a covered call, our breakeven is stock purchase price – entire call premium. If we buy a stock for $48.00 and sell an option for $2.50, the breakeven is $45.50. In June 2019, John shared with me a series of trades he executed with Planet Fitness, Inc. (NYSE: PLNT) where he wrote […]

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covered call writing exit strategies

Is This Trade a Winner or a Loser?: A Real-Life Example with XLE

Covered call writers must understand and evaluate the success (or lack thereof) of our trades. Simply stated, are they winners or losers? In June 2019, Van shared with me trades he executed with the exchange-traded fund (ETF), Energy Select Sector SPDR Fund (NYSE: XLE). He was trying to categorize his trade as a winner or […]

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covered call writing trades

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 […]

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