Put-selling – The Blue Collar Investor https://www.thebluecollarinvestor.com Learn how to invest by selling stock options. Sat, 24 Feb 2024 16:34:45 +0000 en-US hourly 1 The Importance of the 3% Guideline When Selling Out-Of-The-Money Cash-Secured Puts https://www.thebluecollarinvestor.com/the-importance-of-the-3-guideline-when-selling-out-of-the-money-cash-secured-puts/ https://www.thebluecollarinvestor.com/the-importance-of-the-3-guideline-when-selling-out-of-the-money-cash-secured-puts/#comments Sat, 24 Feb 2024 16:34:44 +0000 https://www.thebluecollarinvestor.com/?p=23921
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On 10/20/2023, a BCI premium member shared with me a cash-secured put series of trades executed with Charles Shwab Corp. (NYSE: SCHW). Over the course of 9 months, SCHW dropped in price from approximately $83.00 to $50.87. This series of trades started by selling out-of-the-money (OTM) cash-secured puts which were exercised. The next 7 months involved writing (OTM) covered calls to help mitigate the severe share price decline. I was asked to analyze the trades and if continuing to write OTM covered calls was a viable solution to this losing scenario.

Overview of the SCHW trades

  • 1/13/2023: STO 2 x 3/17/2023 OTM $80.00 puts with SCHW trading at about $84.00
  • 3/17/2023: SCHW trading at approximately $57.50
  • 2 x $80.00 puts were exercised, and shares purchased at $80.00
  • Over the next 7 months OTM covered calls were sold on SCHW
  • On 10/20/2023, SCHW was trading at $50.87

Price chart summary of the SCHW trades

What is the BCI 3% guideline as it relates to selling OTM cash-secured puts?

If share price drops 3% or more below the OTM put strike, we close the put position and avoid the pain of further price decline. Of course, share price can recover, but do we want to take the chance on a security already under-performing our expectations? I submit, no. In the case of the original SCHW put trade, the threshold to close the put trade was $77.60 (3% below $80.00). This price point is 8.8% below the original price of the security ($84.00) when the put trade was initiated. Time to protect ourselves (aka bail).

A picture is worth 100 wordsComparison chart of SCHW versus the S&P 500

Of course, we are all much smarter looking back, but the graphic shows the type of scenario the BCI 3% guideline protects us from. Will this or any exit strategy benefit us 100% of the time? No, nothing works 100% of the time. However, it will protect us from catastrophic losses.

Discussion

The BCI 3% guideline is an excellent tool in mitigating substantial share price decline when selling OTM cash-secured puts. A plan must be in place prior to entering every trade, as how to take advantage of all exit strategy opportunities, whether it’s to mitigate losses or enhance gains.



Alan Ellman’s Selling Cash-Secured Puts

Using stocks and stock options to develop a low-risk, wealth-building strategy for retail investors. Selling puts is a strategy similar to, but not precisely the same as, covered call writing. Mastering either strategy is a huge opportunity for retail investors to secure our financial futures. Mastering both will allow us focus on the best investment choices depending on market conditions and personal risk tolerance.

FOR ADDITIONAL INFORMATION AND PURCHASE LINK, CLICK HERE.


Las Vegas Presentations

It was a real treat for me to meet so many members of our BCI community at my Stock Trader Expo seminars at the Paris Hotel in Las Vegas on Thursday and Friday. You made my days!

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Customer Review for The Complete Encyclopedia for Covered Call Writing

D.B.

5.0 out of 5 stars Terrific resource.

Reviewed in the United States on December 19, 2022

Verified Purchase

Can take the beginner toward an intermediate to advanced process of covered calls and option investing. I have many books on investing, some with quite complex methodologies. This can definitely take you where you need to be to maximize potential profits with a step by step, illustrative manual. I am pouring through this, affirming much that I already know as well as advancing my education in this process. Readable…concise language. Highly recommend.

Upcoming events

1. Mad Hedge Investor Summit

Tuesday March 12, 2024

11 AM ET – 12 PM ET

Free registration link to follow.

Covered Call Writing Dividend Stocks to Create a 3-Income Strategy

Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash-flow. By mastering the skill of strike price selection and adding dividend distributions, a potential 3-income strategy can be crafted with a goal of beating the market on a consistent basis.

Topics covered in this webinar include:

  • Strategy analysis
  • Option basics
  • What is covered call writing?
  • Dividend distribution
  • Stock selection
  • Option selection
  • Trade management

Real-life examples will be highlighted with Dow 30 stocks using option-chains and calculation spreadsheets.

Attendees will have the opportunity to participate in written chat box Q&A during the entire webinar.

A deeply discounted comprehensive package of educational products and tools will be offered in the final minutes of the webinar.

2. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

3. BCI-Only Webinar

Thursday April 11, 2024

8 PM ET – 9:30 PM ET

Topic, description and free registration information to follow.

All questions related to covered call writing and cash-secured puts will be answered in real time after the webinar presentation.

4. Stock Traders Expo- live event in Orlando Florida

October 17 -20

Details to follow.

Alan speaking at a Money Show event********************************************************************************************************************

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Trading Weekly Options on a 4-Day Trading Week https://www.thebluecollarinvestor.com/trading-weekly-options-on-a-4-day-trading-week/ https://www.thebluecollarinvestor.com/trading-weekly-options-on-a-4-day-trading-week/#comments Sat, 27 Jan 2024 12:11:06 +0000 https://www.thebluecollarinvestor.com/?p=23717
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Can we generate meaningful returns writing covered calls or selling cash-secured puts on a 4-day, holiday-shortened trading week? The answer is a resounding yes. This article will focus on a real-life example with PulteGroup, Inc. (NYSE: PHM), starting the day after Labor Day, 9/ 5/2023 through 9/8/2023. This security was an eligible security on our Premium Stock Report dated 9/1/2023.

Bullish price chart of PHM

Aside from an overall market decline in August 2023, PHM had been on a bullish tear since November 2022.

PHM option-chain on 9/5/2023

  • PHM was trading at $82.63
  • The OTM $84.00 call had a bid price of $0.55 (brown cells)
  • The OTM $81.00 put had a bid price $0.50 (yellow cells)
  • Both options had a 4-day expiration on 9/8/2023
  • Both options had adequate liquidity (open interest- purple cells)

PHM call calculations with the BCI Trade Management Calculator (TMC)

  • The Trade Management Calculator shows a 4-day trade if taken through expiration (red circle)
  • The breakeven price point is $82.08 (yellow cell)
  • The 4-day initial time-value return is 0.67% (brown cell)
  • This annualizes to 34.84% for 52 x 4-day trades

PHM put calculations with the BCI Trade Management Calculator (TMC)

  • The Trade Management Calculator shows a 4-day trade if taken through expiration (red circle)
  • The breakeven price point is $80.50 (yellow cell)
  • The 4-day initial time-value return is 0.62% (brown cell)
  • This annualizes to 32.24% for 52 x 4-day trades

Discussion

When holidays result in 4-day trading weeks, it is still likely that we can generate meaningful returns using weekly expirations. This applies to both calls and puts. The BCI Trade Management Calculator (TMC) is extremely useful in analyzing initial trade results and can be used to adjust and manage trades as well (not shown in this article).



The Complete Encyclopedia for Covered Call Writing- Classic Edition (Amazon.com best-seller)

Learn more by clicking here.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan,

Thanks for all you do. Your reports and BCI comments section add a professional and personal tone from your stock market experience. The market does not surprise me as much as it used to.

John

Upcoming events

1. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

2. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) Strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

3. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

4. Stock Traders Expo- live event in Orlando Florida

October 17 -20

Details to follow.

Alan speaking at a Money Show event*********************************************************************************************************************

testimonials, events, etc.)

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Post-Earnings Opportunities: A Real-Life Example with NVIDIA Corp. (Nasdaq: NVDA) https://www.thebluecollarinvestor.com/post-earnings-opportunities-a-real-life-example-with-nvda/ https://www.thebluecollarinvestor.com/post-earnings-opportunities-a-real-life-example-with-nvda/#comments Sat, 20 Jan 2024 11:20:00 +0000 https://www.thebluecollarinvestor.com/?p=23670
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Always avoid having an option in place if there is an upcoming earnings report prior to contract expiration. This applies to covered call writing and selling cash-secured puts as it will avoid the risk inherent in the reports. However, once the report passes and any post-report volatility subsides, the underlying security can be utilized in our option-selling strategies if they meet our system criteria. This article will focus on NVDA, the after-market 8/23/2023 earnings report and the opportunities that presented after the report was made public.

The NVDA earnings announcement

On 8/23/2023, after the market closed, NVDA announced earnings that beat market consensus by 31.0%. The stock price moved up the following trading day and option-chains were analyzed for 1-month covered call writing and put-selling post-event opportunities.

NVDA: Post-earnings option-chain on 8/24/2024 with NVDA trading at $476.57

  • The 9/22/2023 expiration option-chain was evaluated
  • The $490.00 OTM call option showed a bid price of $19.35 (aggressive approach)
  • The $465.00 OTM put option showed a bid price of $18.10 (defensive approach)
  • The purple cells show adequate open interest liquidity
  • The red arrows show reasonable bid-ask spreads

Post-earnings initial call calculations using the BCI Trade Management Calculator

  • The spreadsheet shows a 30-day trade, if taken through contract expiration (circled in red)
  • The initial time-value return is 4.06%, 49.40% annualized (brown cells)
  • The upside potential from share appreciation is 2.82% (purple cell)
  • The breakeven price point is $457.22 (yellow cell)

Post-earnings initial put calculations using the BCI Trade Management Calculator

  • The spreadsheet shows a 30-day trade, if taken through contract expiration (bottom left)
  • The initial time-value return is 4.00%, 48.71% annualized (brown cells)
  • The purchase discount, if exercised is 6.18% (purple cell)
  • The breakeven price point is $447.102 (yellow cell)

Discussion

After an earnings announcement, assuming the underlying stock or ETF still aligns with our system criteria, there will be multiple opportunities to utilize these securities. We can take an aggressive stance with OTM call options or a more conservative approach using OTM put options. With both strategies, the initial time-value returns must align with our pre-stated goals.



BCI Expected Price Movement Calculator

The Expected Price Movement Calculator is designed to generate an approximate projected trading range for the underlying security, specific for selected contract expiration date. The at-the-money implied volatility (IV) of the stock or ETF (exchange-traded fund) is used to achieve this valuable information.

Inherent in the spreadsheet is a conversion formula that recalibrates the annualized IV stat into one specific for the contract being traded. Easily accessed option-chain data is entered into the white cells at the top of the spreadsheet and calculations will appear in the yellow cells below.

This tool will yield upper and lower ends of the trading range during the option contract being traded with an approximate 84% probability of accuracy.

To purchase the BCI Expected Price Movement Calculator, click here.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan,

I’m looking forward to another good year. Thanks for putting out such a great product.

Paul

Upcoming events

1. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

2. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) Strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

3. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

Alan speaking at a Money Show event*********************************************************************************************************************

Begin additional segments text here (like testimonials, events, etc.)

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Combining Covered Call Writing and Selling Cash-Secured Puts https://www.thebluecollarinvestor.com/combining-covered-call-writing-and-selling-cash-secured-puts/ https://www.thebluecollarinvestor.com/combining-covered-call-writing-and-selling-cash-secured-puts/#comments Sat, 13 Jan 2024 12:28:00 +0000 https://www.thebluecollarinvestor.com/?p=23627
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When we integrate both covered call writing and selling cash-secured puts into one multi-tiered option selling strategy, we have our Put-Call-Put or PCP Strategy. Outside the BCI community, this is often referred to as the wheel strategy. Since we are utilizing 2 option strategies over multiple expiration cycles, it is important to properly enter, calculate and archive our trades. This will allow us to accurately assess our trade returns. This article will set up a hypothetical series of trades that starts with an out-of-the-money (OTM) cash-secured put trade and moves into an OTM covered call trade.

Graphic view of the PCP strategy

Hypothetical series of trades with BCI

  • 7/24/2023: BCI trading at $75.00
  • 7/24/2023: STO 1 x $72.50 OTM put at $2.00
  • 8/18/2023 (expiration Friday): Allow exercise of the put with BCI trading at $71.00
  • 8/19/2023 (Saturday after expiration Friday): Shares are put to portfolio at $72.50
  • 8/21/2023: STO 1 x $75.00 OTM call at $1.50

Put leg of PCP with initial and final results using the BCI Trade Management Calculator (TMC)

  • The initial trade return for this 26-day trade is 2.84%, 39.83% annualized
  • The exit strategy dropdown choice is to allow exercise with shares trading at $71.00
  • Since shares are put to the portfolio at $72.50 when trading at $71.00, the spreadsheet shows a debit on the stock side of $1.50 per-share and a credit on the option side of $2.00 per-share, resulting in a net final unrealized (shares not sold) credit of 0.71%
  • Since the unrealized share loss is incorporated into the put expiration cycle, we will enter the stock price in the next (call) leg as $71.00

Call leg of PCP with initial and final results using the BCI Trade Management Calculator (TMC)

  • The stock entry price is $71.00, moved from the price when the put expires
  • Selling the OTM $75.00 call strike for $1.50, results in a 26-day initial return of 2.11%, 29.66% annualized
  • Any share price gain or loss will be based on this $71.00 price point

Discussion

When using the PCP strategy, care must be taken to make precise entries such that all gains and losses are accounted for and there is no duplication of trade results. The BCI Trade Management Calculator will facilitate all these trades and calculations.



Alan Ellman’s Complete Encyclopedia For Covered Call Writing Volume-2

Education is power. That’s the premise of the Blue Collar Investor. When the Complete Encyclopedia for Covered Call Writing was published at the end of 2011 and immediately became the best-selling book on this great strategy, I realized that eventually there would be a Volume 2. It took me four years to gather the information for the original version and I projected four years down the road and realized that more information would become available, more examples could be provided to clarify certain issues and BCI members would make me aware of tangential topics of interest. I also write weekly newsletter articles for the BCI site as well as for other US and international financial venues. It didn’t take a stroke of genius to craft a plan that would allow me to provide new and enhanced information and keep it within the framework of the Complete Encyclopedia for Covered Call Writing, a format you have embraced more than I could ever have imagined. Volume 1 (classic edition) should be read first.

Click here for more information and purchase option.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Customer Review

Terry L

5.0 out of 5 stars Additional tools in the toolbox for covered call writers

This book “Covered Call Writing Alternative Strategies” is an excellent resource for information on additional strategies that can be employed for covered call writers.
The author starts with an introduction to the basics of covered call writing and later provides a section explaining the “Greeks”.
The topics covered are Portfolio Overwriting, The Collar Strategy, and Poor Man’s Covered Call. The topics are clearly explained with easy-to-understand examples provided.
Portfolio overwriting shows how to obtain additional income from stocks that you want to hold over the long term.
The Collar Strategy is protection from downside risk that can be employed around uncertainty of world events or during periods that you are away from the market and cannot monitor your trades.
The Poor Man’s Covered call generates a cash flow stream utilizing LEAPS options with less total cash outlay than traditional covered call writing. As the author puts it, for a seemingly simple concept, there are a lot of moving parts that must be mastered. A decision tree flow chart is even provided.
The book is well worth the read, providing additional tools in the toolbox for covered call writers.

Upcoming events

1. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

2. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) Strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

3. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

Alan speaking at a Money Show event*********************************************************************************************************************

Begin additional segments text here (like testimonials, events, etc.)

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Selling Weekly Puts After Disappointing Earnings Reports: A Real-Life Example with Microsoft Corp. (Nasdaq: MSFT) https://www.thebluecollarinvestor.com/selling-weekly-puts-after-disappointing-earnings-reports/ https://www.thebluecollarinvestor.com/selling-weekly-puts-after-disappointing-earnings-reports/#comments Sat, 23 Dec 2023 11:47:14 +0000 https://www.thebluecollarinvestor.com/?p=23501
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We can leverage our knowledge of cash-secured puts to take advantage of common scenarios. In this article, we will detail how to take advantage of a disappointing earnings report from a stellar blue-chip company. On 7/25/2023, MSFT reported earnings and issued guidance that fell short of market consensus. Share price declined by more than $15.00 per-share. Did MSFT suddenly become a company we would want no part of? Of course not. Will share price decline even further or will it recover? I would lean towards the latter but no guarantees.

Rationale for selling weekly cash-secured puts (CSPs) after a disappointing chip earnings report

  • Using out-of-the-money CSPs will hedge against further share price decline
  • By selling weekly puts, our annualized returns will be greater than using longer dated options
  • Significant annualized returns are probable
  • Favor companies that we would otherwise not minding including in our stock portfolios

MSFT: Year-to-date chart through 7/28/2023

Note that MSFT was outperforming the S&P 500 for over 6 months and continued to do so even after the 7/25/2023 earnings release.

Broker screenshot showing sale of the 7/28/2023 $325.00 put for $1.03 per share

MSFT: 3-day calculations

  • The BCI Trade Management Calculator shows a 3-day return of 0.32% (brown cell)
  • The spreadsheet shows an annualized return of 38.68% but that stat is exaggerated because it includes weekend days which we can’t take advantage of using weekly options
  • The more accurate annualized return is 17%, still significant
  • If the put option is allowed is exercise, MSFT would be purchased at a breakeven price point of $323.97 (yellow cell), a discount of 3.17% (purple cell) from trade entry

Discussion

Mastering all aspects of option-selling allows us to take advantage of a myriad of scenarios that come up all the time. One such event is a disappointing earnings report from an elite-performing blue-chip company.



Covered Call Writing: A Streamlined Approach

How to consistently beat the market using our CEO Strategy

Combining Exchange-Traded Funds with Stock Options 

For more information, click here.

This book Is written for investors seeking a low-risk approach to generating cash flow in a user-friendly and time efficient manner. It utilizes covered call writing and then tailors the strategy to achieve the following goals:

  • Sell options to lower our cost-basis
  • Generate weekly or monthly cash flow with reduced but still significant initial percent returns
  • Reduce the database of underlying securities available from 8500 to 11
  • Reduce the number of exit strategy considerations from 14 to 4
  • Beat the market on a consistent basis
  • Reduce portfolio volatility

This book provides a roadmap as how to accomplish these objectives. The “how”, the “why” and the “when” is addressed for every aspect of each trade. Chapters 9 through 20, show every trade the author executed for each monthly contract in 2022. Screenshots taken from the Scwab.com platform are archived in each chapter.

Here’s what you will not find in this book:

  • A stock called “XYZ”
  • Hypothetical trades
  • Computer generated trades
  • Unrealistic promises
  • Only winning trades

Join us in this 1-year journey using our CEO Strategy, a streamlined approach to covered call writing.

For more information, click here.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan,

Thank you, I really like your service. I do well when I stick to your guidelines. I recommend you to all my friends.

Pat

Upcoming events

1. BCI-Only Webinar: Portfolio Overwriting

Thursday January 11, 2024

8 PM ET – 9:30 PM ET

Registration link available on 12/28/2023

Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks

Increasing profits and avoiding tax issues

Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.  Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.

Topics discussed

  • Brief review of covered call writing
  • Option basics
  • What is an option-chain?
  • Option selection
  • Calculating covered call returns: Real-Life examples
  • Portfolio overwriting defined
  • Pros and cons of portfolio overwriting
  • Why early exercise is so rare
  • Rolling options
  • Role of dividends
  • Locating ex-dividend dates
  • How to avoid early exercise
  • Real-life examples with calculations
  • BCI Portfolio Overwriting Calculator
  • BCI Trade Management Calculator
  • Summary

Registration link to follow on 12/28/2023.

2. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

3. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) Strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

4. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

Alan speaking at a Money Show event*********************************************************************************************************************
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Using the BCI Expected Price Movement Calculator to Sell Weekly Cash-Secured Puts https://www.thebluecollarinvestor.com/usingthe-bci-expected-price-movement-calculator-to-sell-weekly-cash-secured-puts/ https://www.thebluecollarinvestor.com/usingthe-bci-expected-price-movement-calculator-to-sell-weekly-cash-secured-puts/#comments Sat, 16 Dec 2023 12:01:17 +0000 https://www.thebluecollarinvestor.com/?p=23467
click ↑ 4 Featured

When selling cash-secured puts, a common strategy goal is to avoid exercise and having shares put to us. This means selling out-of-the-money (OTM) strikes that have a low probability of exercise or expiring in-the-money (ITM) or with intrinsic-value. One way to quantify an expected trading range of a security is to incorporate its implied volatility (IV). IV stats are based on 1 standard deviation and an annual price movement. There needs to be an adjustment formula to generate a trading range for a specific contract expiration. This article will utilize a real-life example with Crocs, Inc. (Nasdaq: CROX) to establish a trading range and select and calculate initial returns for a weekly put option sale.

CROX on the BCI Premium Stock report on 7/21/2023

  • Weekly options are available (brown cell)
  • The next earnings report is on 8/3/2023 (yellow cell)
  • The at-the-money (ATM) IV is 39.7 (purple cell)

CROX projected trading range between 7/21/2023 and 7/28/2023 using the BCI Expected Price Movement Calculator (available for free to BCI premium members and for sale in the BCI store.)

  • After entering data from the BCI Premium Stock Report into the white cells, calculations appear in the yellow cells
  • The low end of the range is $117.85 (our target strike price)
  • Based on a standard deviation bell curve, the probability of success (avoiding exercise) is 84%
  • Initial calculations must meet our pre-stated initial time-value return goal range

CROX put option-chain on 7/21/2023

  • The $118.00 put strike aligns with our $117.85 strike price
  • The option-chain shows a bid price of $3.10
  • Expecting high initial returns due to the high IV (39.70%)

CROX initial trade calculations using the BCI Trade Management Calculator

  • The initial 8-day time-value return is 2.70%, 123.10% annualized (brown cells)
  • The breakeven price point is $114.90 (yellow cell, red arrow)
  • The discounted purchased price, if exercised is $114.90 or a discount of 8.45% (purple cell)

Discussion

Weekly put options can be sold, generating significant annualized returns, while still crafting high probability of success trades using IV. This can be applied to longer-dated options as well. The BCI Expected Price Movement and Trade Management Calculators will be extremely helpful in crafting and calculating these trades.



Stock Repair Calculator

What is the stock repair strategy?
  • Own shares at a price higher than current market value (unrealized loss)
  • Willing to forego potential profit in exchange for lowering the breakeven price point
  • Not willing to add additional funds to the current losing position
  • Instead of buying shares at the lower price to “average down”, an at-the-money (near-the-money) call option is purchased and funded by selling 2 out-of-the-money call options
  • 2 long positions (stock and ATM or NTM call)
  • 2 short positions (OTM calls covered by long positions)
  • This action will lower the breakeven price point
  • The strategy does not protect against additional downside loss
  • The strategy does cap the upside

Click here to learn more and order.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Hi Alan,

Thank you very much for the presentation. I will keep in touch.

Maybe sometime in the 2nd part of 2024 will be good for another presentation on Covered Calls.

Best Regards,

Stephanie,

President of the AAII Orange County Chapter

Upcoming events

1. BCI-Only Webinar: Portfolio Overwriting

Thursday January 11, 2024

8 PM ET – 9:30 PM ET

Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks

Increasing profits and avoiding tax issues

Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.  Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.

Topics discussed

  • Brief review of covered call writing
  • Option basics
  • What is an option-chain?
  • Option selection
  • Calculating covered call returns: Real-Life examples
  • Portfolio overwriting defined
  • Pros and cons of portfolio overwriting
  • Why early exercise is so rare
  • Rolling options
  • Role of dividends
  • Locating ex-dividend dates
  • How to avoid early exercise
  • Real-life examples with calculations
  • BCI Portfolio Overwriting Calculator
  • BCI Trade Management Calculator
  • Summary

Registration link to follow.

2. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

3. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

4. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

Alan speaking at a Money Show event*********************************************************************************************************************

Begin additional segments text here (like testimonials, events, etc.)

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Buying Back OTM Cash-Secured Puts on Expiration Friday to Avoid Potential Exercise + $25 Discount Coupon https://www.thebluecollarinvestor.com/buying-back-otm-cash-secured-puts-on-expiration-friday-to-avoid-potential-exercise/ https://www.thebluecollarinvestor.com/buying-back-otm-cash-secured-puts-on-expiration-friday-to-avoid-potential-exercise/#comments Sat, 02 Dec 2023 11:50:14 +0000 https://www.thebluecollarinvestor.com/?p=23405
click ↑ 4 Featured

When cash-secured puts are sold, many investors prefer to avoid exercise and having the shares put to them. If the (originally) out-of-the-money (OTM) strike is in-the-money (ITM) as expiration approaches due to share price decline, buying back that put option will avoid exercise. This article will explore a scenario where the put option is OTM on expiration Friday and the cost-to-close the option is miniscule. I decided to take this path because I could not be in front of my computer to monitor the trade through 4PM ET on expiration Friday. Why not buy back that put option early in the day and not have any concerns of share decline below the put strike by 4 PM ET? This article will also include one of our exit strategiesrolling-up.

Real-life weekly example with NVIDIA Corp. (Nasdaq: NVDA)

  • 6/26/2023: NVDA trading at $415.25 (1)
  • 6/26/2023: STO 1 x 6/30/2023 $397.50 OTM put at $1.61 (1)
  • 6/27/2023: BTC 1 x 6/30/2023 $397.50 put at $0.73 (2)
  • 6/27/2023: STO 1 6/30/2023 $400.00 put at $0.98 (rolling-up) (3)
  • 6/30/2023: NVDA trading at $416.75 (4)
  • 6/30/2023: BTC 1 6/30/2023 $400.00 put at $0.03 (4)

Price chart of NVDA from 6/26/2023 – 6/30/2023 

With NVDA trading at $416.75 and the $400.00 strike still OTM, I decided to close the trade at a cost of $3.00 (+0.65 commission) to eliminate the possibility of NVDA dropping below the $400.00 put strike. Although the likelihood of exercise was remote, for $3.65, it was an issue I would never have to deal with. As it turned out, NVDA closed at $423.26 (purple circle).

Initial (pre-rolling) calculations using the BCI Trade Management Calculator

Based on this 5-day trade, the initial time-value return is 0.41%, 29.69% annualized.

Post-rolling results with and without the BTC at expiration

Rolling-up increased the 5-day return from 0.41% to 0.47%, an increase of 14.63% (brown cell). Using the $0.03 BTC on expiration reduced the final return from 0.47% to 0.46%, a reduction of 2.12% (pink cell).

Discussion

When selling cash-secured puts and one of our stated goals is to avoid exercise and the subsequent purchase of the underlying securities, buying back OTM strikes at a miniscule cost should be given consideration. As expiration approaches, the time-value component of OTM premiums approaches $0.00, so the cost-to-close will be negligible, allowing us to avoid the risk of unexpected price movement to the downside risk by expiration.



Covered Call Writing Online Video Course with Downloadable Workbook

Use discount coupon calldvd25 for $25.00 off this product.

Our objective was to create the most complete and comprehensive video program on covered call writing found anywhere. The 4-set video curriculum takes us through the 3 required skills: stock selection, option selection, and position management. The 4th section highlights special circumstances like writing calls against long-term buy-and-hold portfolios.

You Will Learn:
– How to locate the greatest performing stocks for option-selling
– Which Is the best option to sell
– How To calculate your returns
– How To utilize exit strategies – Decrease losses & enhance gains

The program is based on 25 years of actual trading options, not on computer models. All the rules and guidelines presented are based on these real-life experiences. This series will benefit both beginners and more experienced investors and addresses all scenarios that can arise before, during and after trade executions.

Use discount coupon calldvd25 for $25.00 off this product.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan & Barry,

You guys are the best. I’ve been searching high and low for a system that is similar to my investment risk profile along with the ability to have great teaching. You guys have exceeded my expectations. Not only do you do those things, but you also give me a great list of potential stock picks to consider. I love the system and will be patient and wait for the credit/debit spread info to unfold. I honestly plan to be a member for many years.

Sincerely,

Tom

Upcoming events

1. Mad Hedge Investor Summit

December 5 at 11 AM ET – 12 PM ET

Tuesday December 5, 2023

11 AM ET – 12 PM ET

Register for free here.

Using Both Covered Call Writing and Put-Selling to Generate Monthly Cash Flow

Investing with Stock Options

Hosted by Dr. Alan Ellman, President of The Blue Collar Investor Corp.

Barry Bergman, BCI Managing Director

Selling stock options is a proven way to lower our cost basis and beat the market on a consistent basis. Two such low-risk strategies are covered call writing and selling cash-secured puts. This presentation will detail how to incorporate both strategies into one multi-tiered option-selling strategy where we either generate cash-flow or buy a stock at a discount. I refer to this as the Put-Call-Put (PCP) Strategy, also referred to as the wheel strategy.

The basics and pros & cons are discussed as well as a real-life example and introduction into the BCI Trade Management Calculator (TMC). This seminar is appropriate for those who look to generate modest, but consistent, returns which will enable us to beat the market on a consistent basis while focusing on capital preservation.

Register for free here.

2. BCI-Only Webinar: Portfolio Overwriting

Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks

Increasing profits and avoiding tax issues

Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.  Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.

Topics discussed

  • Brief review of covered call writing
  • Option basics
  • What is an option-chain?
  • Option selection
  • Calculating covered call returns: Real-Life examples
  • Portfolio overwriting defined
  • Pros and cons of portfolio overwriting
  • Why early exercise is so rare
  • Rolling options
  • Role of dividends
  • Locating ex-dividend dates
  • How to avoid early exercise
  • Real-life examples with calculations
  • BCI Portfolio Overwriting Calculator
  • BCI Trade Management Calculator
  • Summary

Details & registration link to follow.

3. Long Island Stock Traders Meetup Group (private investment club- Part I)

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

4. Las Vegas Money Show & Stock Traders Live In-Person Event

February 21 – 23, 2024

Paris Hotel

Details to follow.

5. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

Alan speaking at a Money Show event*********************************************************************************************************************
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