Options calculations are critical to maximizing covered call returns. The Elite version of the Ellman Calculator is an important tool in guiding us to making the best possible investment decisions. The Basic Ellman Calculator contains the following tabs:
- Single tab
- Multiple tab
- “What now” tab
The Elite version contains these four tabs plus two more:
- “Unwind now” tab
- Schedule D
The “Unwind now” tab is explained in the following journal article:
The purpose of this article is to explain the benefits of the Schedule D particularly for those trading outside of sheltered accounts. As you will see, a lot of time and effort has gone into the expanded version of the calculator.
In non-sheltered accounts, if you sold a stock or option, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks complicated and it certainly can be.
Your extra work will be greatly reduced by the Schedule D tab of the Elite Calculator. You will also be rewarded by tax savings. If you lost money, this form will help you use those losses to offset any gains or a portion of your ordinary income. And if you profited from your transactions, it will help ensure you don’t overpay the government for your gains.
When you make money on a sale, Schedule D requires you to report the transaction using some basic information, including when you bought the asset and when you sold it. This is critical, because how long you hold the property determines its tax rate.
If you owned the security for a year or less, any gain will cost you more in taxes. These short-term assets are taxed at the same rate as your regular income, which could be as high as 35 percent on your return. Short-term sales are reported in Part 1 of the form.
However, if you held the security for 366 days or more, it’s a long-term asset and is eligible for a lower capital gains rate — 15 percent or even zero percent, depending upon your income level. Sales of these assets are reported in Part 2 of the form.
- Name of asset
- Date purchased
- Date sold
- Price sold
- Cost basis
The gain or loss that you enter is figured by subtracting your basis from the sales price.
Figure 1 below shows the Schedule D information tab accessed by clicking on the icon highlighted by the red arrow:
I have highlighted the following areas:
- Yellow-personal information to enter
- Green- user information
- Pink- six entry codes or different pages of the Schedule D specific for the type of trade
Covered call writers will use predominantly entry tabs D2, D3 and D4.
Entry tab D2
We use this entry code when we buy a stock, sell the call and our shares are assigned. In all entry tabs, information is entered in blue areas only as shown in figure 2:
Entry tab D2- enter info
In this example, we bought AAPL for $200 and sold the $200 call for $650. The calculations will appear in the right side of the tab in the “white areas” Figure 3:
Entry code D2- results
The red-circled area shows a short-term profit of $650.
Entry tab D3
We use this code when we buy a stock, sell the option and then buy back the option. Once again, the information is entered in the blue areas as shown in figure 4:
The calculations will appear in the white areas on the right side of the tab as displayed in figure 5:
Entry tab D4- results
Since the option was sold for $650 and repurchased for $124, the spreadsheet shows a short-term capital gain of $526 (red circle).
Entry tab D4
We use this entry tab when we buy a stock, sell the call and the option expires worthless. The blue cells are filled in as shown in figure 6:
Note that the option on line 1 was sold in 2009 while the option on the second line was sold in 2007. Next we view the calculations on the right side of the tab in the white areas (figure 7):
Entry tab 4 results
The green area shows a short-term capital gain of $650 and the yellow area shows a long-term capital gain of $1100. The totals capital gain of $1750 (red circle) is broken down into short and long-term at the bottom of the page.
The other entry codes are for stocks or options only and not the combination of the two as we utilize for covered call writing. At the time of the penning of this book consideration was being given to expanding the Schedule D to include puts.
How to purchase the Elite Calculator:
The Elite Calculator is offered for FREE to premium members and available in the resource download section. Also available in this area is the 23-page user guide. General members can obtain the enhanced version of the calculator in the Blue Collar Store:
The calculator and user guide will be emailed directly to your computer.
The information gleaned from the Schedule D of the Elite Calculator should be used in consultation with your tax advisor.
Owen Sargent (outstanding CPA who helped develop the calculator) can be contacted @ ([email protected]) to answer any questions relating to the calculator or tax consequences from options trading.
Upcoming live events (details to follow):
- September 14, 2012: Paris Hotel, Las Vegas Nevada
- November 10, 2012: University Club, Chicago Illinois
- Spring 2013: Atlanta Georgia
- September 17, 2013: Philadelphia Pennsylvania
This was a light week for economic reports:
- New home sales declined 8.4% in June compared to May stats however 15% higher than a year ago
- New orders for durable goods rose 1.6% in June better than the 0.4% expected
- The first estimate of annual GDP in the 2nd quarter came in a 1.5%, down from the 2.0% reading of the 1st quarter but came in as anticipated
- Spending on services rose from 1.3% in the 1st quarter to 1.9% in the 2nd quarter
- Exports rose by 5.3% for the 3rd consecutive quarter
- Imports also rose from 3.1% to 6.0% causing a net negative GDP factor
For the week, the S&P 500 rose by 1.7% for a year-to-date return of 11.5% including dividends.
IBD: Confirmed uptrend
BCI: Cautiously bullish favoring in-the-money strikes
Wishing you the best in investing,
Alan ([email protected])