Comments on: Covered Call Writing When There Is Overall Market Concern https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/ Learn how to invest by selling stock options. Mon, 26 May 2014 20:20:49 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19533 Mon, 26 May 2014 20:20:49 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19533 In reply to Raj Venkatappan.

Raj,

I use monthlys but the concept is universal:

For cash-secured puts (a more bearish strategy in my view) , I use out-of-the-money strikes, making sure my returns meet my monthly goal of 2 – 4%

For covered call writing, I select strikes that return 2 – 4% of time value and base the ITM vs. OTM strikes on my overall market assessment. chart technicals and personal risk tolerance. This information is detailed with specific examples in my books/DVDs.

Alan

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By: Raj Venkatappan https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19532 Mon, 26 May 2014 19:03:18 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19532 Dear Mr. Ellman,

How do you select the strike price for weekly cash secured put selling and weekly covered call selling?

Thank you.

Raj

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By: Carlos https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19505 Fri, 23 May 2014 12:28:19 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19505 In reply to Alan Ellman.

Thanks a lot!

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By: Alan Ellman https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19502 Fri, 23 May 2014 11:42:41 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19502 In reply to Carlos.

Carlos,

Although related, it is more the option premium breakdown rather than specific share value that will dictate when to institute the MCU exit strategy. The question we ask ourselves is this: Can we generate more income in a 2nd position than it costs us to close the original position? As the time value approaches zero as share price rises and leaves the strike deep in-the-money, the opportunity for the mid-contract unwind exit strategy increases. There is no one formula for every stock as implied volatility will play a role in the premium breakdown.

Bottom line: As share price rises significantly above the strike, check the options chain maybe once a day. Also, use percentages:

time value to close/strike = % cost to close

Then see if a new position can generate a higher %.

Alan

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By: Carlos https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19488 Thu, 22 May 2014 15:12:28 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19488 In reply to Alan Ellman.

Alan, one final question: in the Mid – contract unwind-stock price goes up, do you have a percentage or range of percentages that the stock must go above the stock price you paid initially, so there is a good chance that we can execute this strategy when loading the information in the Ellman calculator? (Where we will make sure that it meets our conditions: 1st part of the contract, premium with almost no time value, time to open a new position…).
I ask this because when a stock goes up in the first part of the contract, I always wonder if it is enough to execute the strategy, but can only find out loading all the info in the calculator. Do you have a guide line?
Thanks again!

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By: Carlos https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19484 Thu, 22 May 2014 13:54:29 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19484 In reply to Alan Ellman.

Thanks a lot Alan and Barry. Personally I prefer also to use supports instead of %, and you are absolutely right that in rare events the price will probably gap down. I am learning to use protective puts and sell cash secured puts from your documents, and it seems like a great idea to have higher control o our investments in uncertain times.
Best regards!

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By: Barry B https://www.thebluecollarinvestor.com/covered-call-writing-when-there-is-overall-market-concern/#comment-19472 Wed, 21 May 2014 19:10:57 +0000 http://www.thebluecollarinvestor.com/?p=9782#comment-19472 In reply to Alan Ellman.

Carlos,

In addition to Alan’s comments, you might want to consider two additional ideas:

[1] Instead of using a percentage drop as Alan suggests, you might want to look at where historical support has been strong and use that as a potential exit target. Support and resistance are excellent tools, as well as moving averages for support.

[2] In a 9/11 type event, you may blow through your stop on the way down as Alan suggests. A way to give you the price that you want is to use a protective put. Although this will increase the cost of the trade, it guarantees you your exit price, no matter how far the stock drops.

Best,

Barry

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