Comments on: Comparing Similar Covered Call Writing and Put-Selling Positions https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/ Learn how to invest by selling stock options. Fri, 22 Apr 2016 10:41:02 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-41186 Fri, 22 Apr 2016 10:41:02 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-41186 In reply to Alex.

Alex,

Note that PRAH (and many others) are located in gold, not white, cells, This is to ensure that our members are aware that the stock is not eligible until the earnings report passes. Once the 4/27 date passes, assuming the stock still meets all other system criteria, PRAH will then appear in the white cells.

Alan

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By: Alex https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-41181 Fri, 22 Apr 2016 07:02:35 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-41181 Alan,

I see the stock PRAH is in the last list for the calls, however the earning date seems to be on the 27th of April…. shouldn’t be all the stocks in the list away from the earnings?

regards
Alex

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By: Alan Ellman https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-40950 Thu, 21 Apr 2016 10:51:03 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-40950 In reply to Leroy.

Leroy,

Rolling out (forward) 6 months has the advantage of generating an enticing option premium up front. The potential disadvantages:

1- We will be garnering a lower annualized return when compared to writing Monthlys (or Weeklys when applicable).

2- We are undertaking a longer-term commitment on a security we like now but which may not meet our criteria months down the road.

3- We are holding a covered call position through multiple earnings reports. One of the most important of our BCI rules/guidelines is never to write a covered call (or sell a put) when there is an upcoming earnings report prior to contract expiration.

Alan

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By: Leroy https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-40943 Thu, 21 Apr 2016 05:57:35 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-40943 I wanted to ask you a question :I sold a covered call on a stock i owned @28$ per share for 30$ month of May . The stock quickly went up to 32$ . I rolled out and up still October at the same 30$ strike same . Was that the best move if i want to keep the stock.Is there any repercussion for rolling up that far out?

Leroy

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By: Alan Ellman https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-40731 Wed, 20 Apr 2016 23:12:39 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-40731 In reply to Emily.

Emily,

Great comment…you hit the nail on the head. For those not familiar with this very important position management technique:

1- Pages 264-271 of the Classic version of the Complete Encyclopedia

2- Pages 243-252 of Volume 2 of the Complete Encyclopedia

Congratulations to Roger and Emily for taking advantage of this strategy…you made my day.

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-40722 Wed, 20 Apr 2016 23:02:16 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-40722 In reply to Richard.

Richard,

There are two types of calculations:

1- The ones I developed with our calculators which assist us in making the best trading decisions at any given point in time. You did quite well from this perspective by maxing your initial trade with GDXJ and then rolling out-and-up where you lost $2.80 on the option side and gained $4.00 on the stock side (from one strike to the other). That nets an initial return of $1.20 on a cost basis of $27 for a 1-month additional (initial) return of 4.4% If GDXJ remains above $31.00 that’s your second income stream. This is above the 4.4% you generated with your first covered call trade.

2- P&L calculations (check with your tax advisor on the comments I am about to make):

The initial option was sold and then closed (acquisition date after sale date) prior to contract expiration. That trade shows up as a loss on a P&L spreadsheet or Schedule D ($5 – $1.35 or a loss of $3.65). Share value at this point in time (before selling the second option) is $31.69. Your unrealized share appreciation is $4.53. Now you sell a $31 call and so both the short option and long stock positions are open so P&L cannot be calculated until closed. Management skills will bring us to the highest possible levels of success.

Alan

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By: Richard https://www.thebluecollarinvestor.com/comparing-similar-covered-call-writing-and-put-selling-positions/#comment-40714 Wed, 20 Apr 2016 22:39:26 +0000 http://www.thebluecollarinvestor.com/?p=13672#comment-40714 Alan,

I have a couple of reasons for writing: 1, to make a comment and 2, to ask a question.

I attended your AAII presentation in Denver last summer and was intrigued with your method and ended up buying two of your books (which I have read and re-read several times.) I also signed up for the Premium Membership and have been paper trading covered call options since September. For the first few months, I didn’t do well but for the past 2 months, the picture has looked much brighter. I know the market tone has affected my results but I have also learned significantly. I have also had a good time even though I am not into real money yet. Thanks for getting me started.

My question has to do with the P&L spreadsheet accounting procedures in cases of rolling out and up. I rolled out and up with a couple of stocks during the April contract period. One in particular was the ETF, GDXJ. I bought the fund at $27.16 and sold a 27 call for $1.35. Close to expiration day, the ETF price had risen to $31.69 and I decided this position was a candidate for rolling out or rolling out and up.

I bought back the option for 5.00 and sold a May 31 Call for $2.20. The “bought up value” at closing was 4.00 giving me a $1.20 net profit for a 4.40 % return.

My question is “What profit value do I enter in the P&L?” Since the total profit includes unrealized gains that won’t be generated until I sell the stock, my inclination is to exclude the “bought up value” when I enter the net profit in the P&L. However, when I do this with the above transitions, I would enter a loss of $2.80. It doesn’t seem possible to realize a positive profit during the May contract period with this position unless I sell the ETF during May and then would end up in the black only if the ETF’s price holds up.

Any comments to help my understanding would be appreciated.

Richard

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