beginners corner
Archive | Stock Option Strategies RSS feed for this section
Portfolio overwriting with GMCR

Portfolio Overwriting- Selling Covered Calls on Stocks You Want to Keep.

For covered call writers the main stock option strategy is to purchase an equity specifically for the purpose of selling the corresponding call option. The investment time frame is one to two months as earnings reports will end the “run” of even the best performing equities (if you agree with my guidelines). In many cases share assignment is […]

12 Comments Continue Reading →
Covered call writing index

Covered Call Writing and Exchange-Traded Funds

A critical requirement of my covered call writing system is to be properly diversified by stock, industry and cash allocation. No one stock or industry should represent more than 20% of your portfolio holdings. Owning five different stocks in five different industries would require you to own at least 500 shares since each options contract […]

9 Comments Continue Reading →
Historical volatility of stocks

Factors that Influence Option Value + The Black-Scholes Model

An integral part of understanding option trading basics, is mastering the components that influence option value. Many option traders will look to make money as a result of a discrepancy between an option’s current market value and its theoretical value. In other words, is the option overpriced or undervalued? If, for example, an option is […]

5 Comments Continue Reading →
Entering a covered call position

Exiting a Covered Call Position Prior to Earnings by Guest Author Laurie Itkin

JUST BECAUSE YOU BUY ITS PRODUCTS DOESN’T MEAN YOU SHOULD BUY ITS STOCK The KORS initial public offering was the topic du jour among my girlfriends at a holiday party last December.  The ladies I know who invest in stocks were trying to figure out how to get in on the IPO before the share […]

6 Comments Continue Reading →
Protective Puts

Protective Puts: Using The Collar Strategy During Volatile Markets

As safe a strategy as covered call writing is there is some risk; the risk is in purchasing the stock, not in selling the option. For this reason, some investors who sell covered calls also buy protective puts to alleviate some of the risk especially in volatile markets like we’ve experienced recently. Remember, the owner of […]

10 Comments Continue Reading →
Avoid earnings reports when selling covered calls

Mastering Covered Call Writing: Learning From Your Mistakes by guest author Laurie Itkin

Sophia Loren once said, “It’s better to explore life and make mistakes than to play it safe. Mistakes are part of the dues one pays for a full life.”  I presume she was speaking about love and romance rather than options trading, but her advice is sage in both situations. I follow Loren’s advice in […]

9 Comments Continue Reading →

Covered Call Writing: Should We Use Stop Loss Orders?

Exit strategy execution is critical to maximizing our covered call writing success. But what approach should we use if the underlying equity declines in value? Many investors use a stop loss order when a stock they own declines in value. The question then becomes is this the best approach for covered call writing? There are […]

17 Comments Continue Reading →

Out-Of-The-Money Strike Prices: Pros and Cons for Covered Call Writing

Whenever a study is performed on covered call writing a stock is selected and the nearest out-of-the-money (O-T-M) strike price is sold. This is repeated over and over and then the results are compared to the overall market performance. The usual conclusion is that covered call writing slightly outperforms the overall market but with much […]

17 Comments Continue Reading →

Covered Call Writing Exchange-Traded Funds

As covered call writers we strive to generate monthly cash flow by selling call options in a conservative, low-risk environment. This approach is quite appealing to many retail investors but many look to fund managers to take advantage of this great strategy. As a result there are now 31 closed-end funds that use covered call […]

22 Comments Continue Reading →

Facebook and the Greenshoe Option

When studying covered call writing we learn to master stock investing as well as option trading basics. Then we become elite investors by focusing in on the inter-relationship between the two. In this regard, a story most of us have been following the past two weeks has been the initial public offering (IPO) of Facebook […]

19 Comments Continue Reading →