Comments on: Covered Call Writing and Inverse ETFs: Generating Cash in Extreme Bear Markets https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/ Learn how to invest by selling stock options. Sun, 31 Jan 2016 17:25:05 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29723 Sun, 31 Jan 2016 17:25:05 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29723 In reply to Adrian.

Adrian,

$5 strike increments have always been the “norm” However, because of the huge popularity of options, additional products like Weeklys, Quarterlys, Minis and smaller strike increments have been added and continue to be added. Our guideline remains open interest (OI) of 100 contracts or more and/or a bid-ask spread of $0.30 or less. Also, be sure to leverage the “Show or Fill Rule” to negotiate the best prices with market makers (see pages 225 227 of the Complete Encyclopedia classic and pages 122-124 of the Complete Encyclopedia Volume 2).

Alan

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29720 Sun, 31 Jan 2016 17:17:57 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29720 In reply to Adrian.

Adrian,

4- Rolling out-and-down with Weeklies in the same contract month is the same thing as rolling down with Monthlys in the same contract month so I would consider it. The question we must evaluate is the security initially selected as an option-selling candidate still our best choice for investing the cash currently in that stock or ETF. Also, if the share price is declining and is below the strike, rolling may not be necessary as expiration approaches. Just allow the option to expire worthless and write another call the following week.

5- There are two primary reasons we display great-performers even though they have ERs in the current month and do not have Weeklys associated withy them: First, we have many members who use our reports to buy and sell stock in accounts not related to options and second members may decide to hold stock already in their option portfolios and write calls after the report passes and want to evaluate whether these shares still meet our rigorous system criteria.

Alan

]]>
By: Adrian https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29426 Sat, 30 Jan 2016 06:23:42 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29426 Alan,
On confirming your 2nd answer, the options with higher strike price gaps such as $5 so these would be riskier to hold, because if price goes down then the liquidity may reduce so much that I may not be able to rolldown or close-out a position.

Wasn’t this what you meant by once saying to constantly check about closing a position? (maybe it’s best for me to include a scan of stocks with strike gaps no greater than $2.50, what do you even think of that?, noticeably most of my papertrade losses have been from those stocks with $5 strike gaps too.)

– I had Qu’s 4 and 5 whenever you want to reply? Thanks

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29151 Thu, 28 Jan 2016 17:05:26 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29151 In reply to John.

John,

This is such an important concept to master as covered call writers or put-sellers. The time value component of our premiums is impacted by time to expiration and the implied volatility of the underlying security. Assuming we are comparing options with similar expiration dates, it’s all about the volatility. In essence, we are selling volatility.

The takeaway: The higher the time value, the greater the premium but also the higher the risk.

Alan

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29148 Thu, 28 Jan 2016 16:49:02 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29148 In reply to GC.

GC,

There is no one right answer to this question but I can tell you that my personal preference is to stay with the confines of the current contract, currently the February Monthlys. If I were entering a position today, I would check for returns from my watch list for the February 19th expiration. I don’t like to take a longer-term obligation into the next contract month. If I can generate an initial return of 1 1/2 – 2% for 3 weeks, I’m happy. If we do go into the March contracts, it is important to check for earnings report dates.

I am frequently asked about entering the next month contract in the final week of the near-month contract. Because time value erosion (Theta) is logarithmic in nature (starts off slowly and picks up steam as expiration approaches), I prefer to wait until the near-month contract expires in that we will lose very little time value and incur less risk.

Alan

]]>
By: Roni https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29140 Thu, 28 Jan 2016 15:48:12 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29140 In reply to Jay.

Hello Jay,
sorry for delay, I was away a few days.
You got your wish with the Broncos win. Congrats and cheers. 🙂

Your market appraisal is wonderful.
Your expertise is far beyond my present trading knowledge, therefore it is very valuable to me.

Please remember that I live in Brazil, where almost nobody trades in the American market, and I have nobody to help me.
My friends and aquaintances don’t know anything about the subject, and I cannot even have a conversation with them about this.

Best of luck – Roni

]]>
By: John https://www.thebluecollarinvestor.com/covered-call-writing-and-inverse-etfs-generating-cash-in-extreme-bear-markets/#comment-29149 Thu, 28 Jan 2016 15:34:29 +0000 http://www.thebluecollarinvestor.com/?p=13793#comment-29149 Hi I know you have discussed this in your book but I been trying to go back to your books and I cant seem to find it again. Some stocks have a high profit than other stocks. For example NFLX if its a 10% in the money covered call I can still earn around 2% profit while some stocks a 10% in the money can only let you earn 0.2%. Whats factor causes that? is it IV%? beta? Can you help me out so that I can quickly identify which stocks I should avoid or becareful off thanks.

Kind Regards,

John

]]>