Comments on: Covered Call Writing And Dividend Capture: Evaluating A Proposed Strategy https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/ Learn how to invest by selling stock options. Tue, 12 May 2015 18:14:01 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22989 Tue, 12 May 2015 18:14:01 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22989 In reply to Mark.

Mark,

I have no issue with members who prefer weeklys as long as we understand and trade according to the pros and cons of those products. Those who trade weeklys believe they can achieve higher annualized returns, so let’s call that one possible advantage. Also, we can trade weeklys up until the week before an earnings report and then the week after thereby having the ability to use a security more frequently than we can for monthlys.

On the other side of the column, we are selecting stocks and ETFs from a smaller pool, have less time for exit strategy maneuvers, have more frequent “rolling” decisions and have double or quadruple the number and amount of trading commissions.

I personally prefer monthlys but believe that excellent returns can be generated from weeklys as well as long as we master all three required skills (stock selection, option selection and position management).

Alan

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By: Mark https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22988 Tue, 12 May 2015 18:06:50 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22988 Why not sell 1 or 2 week covered call options since the premiums are still often good as opposed to 30 day? It would seem to be more profitable. Thanks!

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By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22987 Tue, 12 May 2015 18:05:10 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22987 In reply to Adrian.

Adrian, My responses:

1- This is a good guideline…perhaps a drop lower due to the logarithmic nature of theta.

2- In the first week of a contract, everything is in play. By mid-contract I would opt for an ITM strike unless we are in a strong bull market with strong chart technicals.

3- 2-3 days as a guideline

4- Assuming the news that caused the gap-down was not egregious and consolidation took place, I would start selling OTM strikes after the first few days. We can always re-visit that decision at the end of the contract.

5- I have no issue incorporating additional technical indicators but let’s not hang our hat on it or any other one. We have a series of many screens and no one screen by itself should impact our decisions. RS lines can confirm or contradict other indicators and that may lead to more bullish or bearish covered call positions (ITM or OTM).

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22971 Mon, 11 May 2015 14:56:36 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22971 In reply to Lloyd.

Lloyd,

I generally wait for the beginning of the new contract because of the logarithmic nature of theta (time value decreases slowly at the beginning so less time-value premium is lost earlier than later). We are incurring less risk without costing us much premium.

Alan

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By: Adrian https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22965 Mon, 11 May 2015 08:37:29 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22965 Alan, I have a mix of questions below with them being put under their headings this time, just about some various things I think are of importance:-
Returns.
1. If I am in the middle of the contract and am choosing between a few stocks to use, then should I also check to see that the return for an ATM strike is no greater than 3% for stocks, and 1.50% for ETF’s?(half the normal amounts)?
MCU.
2. If you sell ITM options for the 2nd stock of a MCU strategy, then wouldn’t it be best to do the same for the 2nd call written for the ‘Hit a Double’ strategy, as this could be near the middle of the contract month too?(if you don’t think so then can you tell me why?)
Gapdowns.
3. After a stock gaps down then how many days will you wait for the price to consolidate s/ways?
4. And when it does actually move in a s/ways range, then how long do you again wait in the hope for price to go back up? (I do suppose this could be anywhere from a day to over a week or more)?
RS line.
5. Lastly if as I wish to incorporate the ‘RS line’ with my other indicators then would you say that it should always be trending up to show market outperformance, if I am thinking of buy a stock – from the look of the other indicators, chart, etc? (if it goes S/ways or inline with the market performance then I am guessing the stocks future performance may not be as great, or could it be alright you think?)

Thanks for any advise with these subjects here.

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By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22958 Sun, 10 May 2015 16:42:26 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22958 In reply to Joe.

Joe,

In our reports, we break down eligibility by contract month, NOT calendar month. Please note the broken black lines on the “running list” The May contracts expire on 5-15-15 so AVGO is eligible for May but will not be eligible for the June contracts until the earnings report passes on the 28th.

Alan

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By: Joe https://www.thebluecollarinvestor.com/covered-call-writing-and-dividend-capture-evaluating-a-proposed-strategy/#comment-22956 Sun, 10 May 2015 16:37:26 +0000 http://www.thebluecollarinvestor.com/?p=10182#comment-22956 Alan,

How can avgo be on this weeks list when it is reporting earnings on May 28?

Joe

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