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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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timing covered call trades

Timing Our Covered Call Trades: Lost Opportunity to Generate Cash with Facebook + Black Friday Discount through Monday

Our covered call options should be sold simultaneously with the purchase of our stocks. If we have evaluated a stock and have a bullish assessment for our covered call portfolio, we next check an option-chain to see if the initial time-value returns meet our goals ( for me, it’s 2% – 4% per month). By […]

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Expiration Dates versus Expiration Times: Important Clarifications

When we sell covered call options or cash-secured puts, the expiration date of our monthly option contracts is usually the third Friday of the month at 4 PM ET. However, this is not to be confused with the expiration time of these contracts. The latter is the date and time when the contract is rendered […]

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Delta and the moneyness of strikes

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 […]

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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, […]

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exercise of options

Why Was My Short Out-Of-The-Money Put Exercised?

When we sell covered calls or cash-secured puts, we understand that if a strike ends up in-the-money at expiration, that option will be exercised over the weekend and shares will be sold or purchased depending on the option type (for calls, our shares are sold; for puts, new shares are purchased with the cash set […]

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Can We Manage Our In-The-Money Strikes to Create a No-Risk Investment Strategy?

Covered call writing is a low-risk cash-generating strategy. It is not a no-risk strategy. As we become educated and master the 3-required skills (stock selection, option selection and position management), it is understandable why BCI members try to figure out strategies that can convert low-risk to no-risk. Here is a common inquiry I receive from […]

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covered call writing and the option Greeks

Timing Our Covered Call Trades: The Best Time to Sell Our Options After Buying the Stock

The goals of covered call writing include generating monthly cash flow and preserving capital. We use every fundamental, technical and common-sense principle available to maximize our profits and protect our cash. Paul A. previously sent me an excellent question that motivated this article: …if the market has a down day and drags down the price […]

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