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Covered Calls and Dividends: A Proposed Strategy

Covered call writers must factor in dividends into our investment strategies. More specifically, ex-dividend dates for these are the dates shareholders must own the shares to benefit from the dividend distribution. Call buyers must exercise the option prior to the ex-date to capture the forthcoming dividend. This makes our shares subject to early exercise (exercise prior to contract expiration). Relating to this topic, I recently came across an email I received a few years ago with a proposed covered call strategy involving dividends and market timing and thought this would be an interesting strategy to evaluate.

The strategy proposed in this email

This was presented by a well-known timing service and I am wondering if there is any merit to this strategy. Here’s how it works:

  • Portfolio of about $100,000.00 for diversification
  • Each Friday you sell a call option on a stock that pays a dividend of at least $2.00 and yields at least 4% or at least $0.50 per quarter and meet the stock selection criteria. (In our model, it would be passing all the BCI requirements)
  • By selling one security each Friday you will get a decent paycheck weekly
  • The option that needs to be considered along with the dividend is that it should be one strike out of the money (or in the money) depending on the market conditions
  • The strike needs to go out at least three months (to get a decent premium) Example: Sell in March, with an expiration in June etc.
  • Each Friday you repeat this process until 10-13 positions are in place. Then rinse and repeat. I have 13 positions because I believe there are 13 weeks in 3 month periods
  • The service provided have had this model for 2 years and has averaged about $700.00 – $800.00 dollars per week and a profit each year of over 30%. Again, kept for three months to get the extra dividend boost
  • The numbers do not include gains or losses in stock price
  • You only have to look at your portfolio once a week
  • My concern would be the earnings reports and when they come due. I guess you can work around that with so many opportunities out there

Any thoughts on this strategy?

 

Evaluating a proposed strategy, the Blue Collar way

I believe that a proposed strategy should be evaluated with an open mind. Whether we accept it or reject it, a fair appraisal will be a valuable learning tool. There also may be one or two ideas that we glean that can be integrated into our current strategy. The learning process never ends!

In my view, the best way to determine the value of an investment strategy is to fully educate yourself in all aspects and then paper trade for an appropriate time frame, usually several months. Here are my preliminary thoughts playing devil’s advocate:

  • My initial overall reaction is that this approach takes a relatively simple strategy and complicates it exponentially
  • By requiring our covered call security candidates to have a minimum of a 4% dividend (I’d like to see a max dividend yield as well…too high could mean a decelerating share price) our pool of candidates will be dramatically diminished or our fundamental and technical requirements watered down
  • Holding a stock in a covered call position through a dividend distribution will normally mean holding it through an earnings report as well. This would be a BIG mistake
  • A 4% dividend yield is an annual yield; 1% for the quarter, one third of 1% for the month. Furthermore, when a dividend is distributed the price of the stock oftentimes declines by the dividend amount. Should we be ignoring better-performing securities in favor of a (yawn) 0.3% dividend? If, however, one of those great performers also generates a dividend, even better…we’ll take it. But I would be careful about making my stock selections mainly based on dividend yield
  • No mention of exit strategies which are critical to achieving the highest level of option-selling success
  • No discussion of early assignment of the option. If the time value of the option premium is less than the dividend about to be distributed and if the option Delta is above 0.95 (strike deep in-the-money), there is a good chance that the shares will be sold and no dividend captured. To circumvent, the option could be rolled prior to the ex-date but now our obligation is even greater than three months perhaps on an equity that doesn’t deserve that type of commitment
  • Weekly income seems to be stressed here. Why? When we use the BCI methodology all premiums are collected at the beginning of the contract cycle and can be immediately re-invested at a higher rate than any dividend distribution. By receiving more money quicker, it can be compounded sooner
  • Selling options each week will put us in multiple positions in multiple time frames requiring more intensive monitoring and as I said initially seemingly complicating a rather simple strategy
  • 3-month expirations will generate much lower returns than 1-month options
  •  A 30% return is possible with covered call writing but NOT without sophisticated exit strategy management. That much I can say without paper trading. Share price change must be factored into the equation
  • Only one third of optionable securities will have options 3 months out depending on the expiration cycle they have been assigned to:
covered call writing and stock dividends

Option Expiration Cycles

  • Every portfolio including covered calls must be looked at daily

(Feel like I just completed a term paper!).

 

Discussion

Now based on these initial thoughts it would appear that I am skeptical and I am. But let me go back to my original premise that to really know the value of a strategy we must fully educate ourselves and then paper trade. I hope you find my thoughts useful in the educational aspect of evaluating this approach. These ideas should not eliminate this strategy from our consideration but rather strengthen the basis of our analysis.

Next live events

Blue Hour 5: Evaluating Mutual Fund Portfolios and Financial Advisors

Plus: The Top 5 Option Questions from 2016

Thursday April 27th

9 PM ET

This is a 2-part webinar presentation:

1: Many of us hold portfolios of actively-managed mutual funds that we’ve either selected ourselves or, more likely, been based on financial advisor advice. This webinar will provide a user-friendly technique to evaluate the performance of these portfolios and hence the performance of our financial advisors. We should commend those advisers who are out-performing the overall market and certainly question those who are under-performing the market and charging us fees to fall short. “Indexing will be defined and explained and a system to set up comparison charts (FOR FREE) will be highlighted.

2: The BCI team has gone through thousands of questions sent to us in 2016 and selected the top-5 most frequently asked questions to ask and answer in the second part of this webinar.

As always, written questions will be answered live by Barry Bergman, the BCI Director of Research, while Alan hosts the presentation.

Non-members register here

Premium members login to the member site a register for FREE here:

Premium Member Blue Hour Registration Link

Premium Member Blue Hour Registration Link

 

Long Island Stock Trader’s Meetup

Tuesday May 9th, 2017

7 PM – 9:30 PM

“Using Stock Options to Buy Stocks at a Discount and to Bring Portfolio Returns to Higher Levels”

Admission is FREE

Register and information

 

Market tone   

Global stocks edged up for the week as investors focused on positive US corporate earnings and overlooked increasing geopolitical tension and a likely delay in US tax reform. Oil prices declined, with West Texas Intermediate dropping to nearly $50 from last week’s close of $53.25. Volatility, as measured by the Chicago Board Options Exchange Volatility index, dropped to 14.63, down from 16 last week. This week’s reports and international news of importance:

  • In the wake of a failed missile test last weekend, North Korea this week threatened the United States, South Korea and Japan with a “super-mighty preemptive strike” after Secretary of State Rex Tillerson said the US is reviewing ways to compel the North Korean regime to re-engage diplomatically as the US navy is moving an aircraft carrier battle group toward North Korea as US and South Korean forces conduct annual training exercises
  • British prime minister Theresa May called for an early general election in the United Kingdom in an attempt to strengthen her hand in upcoming Brexit negotiations. May’s Conservative Party holds a 20% lead in most opinion polls
  • The pound rallied to a six-month high in the wake of the June 8th election call
  • Treasury Secretary Steven Mnuchin downplayed the odds of Congress being able to pass tax reform ahead of the scheduled August recess
  • The inability of the House Republicans to agree on a plan to repeal and replace Obamacare has delayed potential policy wins on other high priority policy issues, such as improving infrastructure
  • The first round of the French presidential election takes place on Sunday, April 23rd, with four candidates within striking distance of victory. The National Front’s Marine Le Pen and centrist Emmanuel Macron hold slight leads over Republican François Fillon and leftist Jean-Luc Mélenchon. The betting odds favor Le Pen and Macron advancing to the runoff on May 7th, in which Macron, the more establishment candidate, is expected to triumph
  • The US Federal Reserve released its Beige Book in advance of the May Federal Open Market Committee meeting this week. The report noted continued modest economic growth and tight labor markets
  • Despite the Fed’s upbeat outlook for the economy, investors are dialing back expectations of multiple rate hikes in 2017. At present, only one additional hike is fully priced in by markets
  • China’s economic growth rate accelerated to 6.9% in the first quarter, the fastest pace in six quarters. Additionally, retail sales rose 10.9% year over year in March, beating estimates, as did industrial output, which rose 7.6% in March. Analysts had expected fiscal and monetary stimulus to weaken in 2017, but so far that has not been the case.
  • President Recep Tayyip Erdogan last Sunday narrowly won a referendum that expands the powers of the Turkish presidency. Turkey will move from a parliamentary system to a system with an executive presidency. The new system will go into effect at the beginning of the next presidential term. Some observers fear the move is part of a continued drift toward authoritarianism in Turkey

 

 THE WEEK AHEAD

MONDAY, APRIL 24th

·        Chicago Fed national activity index  

TUESDAY, APRIL 25th

·        Case-Shiller home price index Feb.

·        Consumer confidence index April

·        New home sales March 

WEDNESDAY, APRIL 26th 

·        None scheduled  

THURSDAY, APRIL 27th

·        Weekly jobless claims 4/22

·        Durable goods orders March

·        Pending home sales March 

FRIDAY, APRIL 28th

·        Gross domestic product Q1

·        Employment cost index Q1

·        Consumer sentiment (final) April

For the week, the S&P 500 moved up by 0.85% for a year-to-date return of 4.91%. 

Summary 

IBD: Uptrend under pressure

GMI: 4/6- Sell signal since market close of April 17, 2017

BCI: I am currently favoring in-the-money strikes 2-to-1, a defensive posture, no change from last week

WHAT THE BROAD MARKET INDICATORS (S&P 500 AND VIX) ARE TELLING US

The 6-month charts point to a neutral to slightly bearish outlook. In the past six months, the S&P 500 was up 10% while the VIX (14.63) also rose by 10%.

_____________________________________________________

Wishing you the best in investing,

Alan ([email protected]) and the BCI team

 

 

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

41 Responses to “Covered Calls and Dividends: A Proposed Strategy”

  1. Alan Ellman April 22, 2017 7:07 am #

    Rolling options:

    I’ve had a few recent inquiries why I don’t factor in near-month option credits when calculate rolling options. Here is my thinking:

    When we are considering rolling an option on expiration Friday, our near-month trade has been maxed. We have captured our option premium plus share appreciation to the strike had we sold an OTM strike. That’s done and money in the bank.

    At this point in time, our decision is to roll the option or allow assignment. To make the best decision, we must calculate our share value as the previous strike sold (current practical value because of the option obligation) and evaluate initial profits based on option credit (debit) + share appreciation if we roll up. Factoring in old share value and previous option credits will cloud our decision.

    Calculations are different when figuring for tax purposes…see the Schedule D from the Elite version of the Ellman Calculator and seek advice from your tax advisor.

    Alan

  2. Marcos April 22, 2017 11:00 am #

    I would like to ask Allan if he could do a video about weekly covered call writing telling us his experience with that and if he used exit strategies while executing weekly covered call options.

    thanks for your work!
    marcos

    • Alan Ellman April 23, 2017 9:20 am #

      Marcos,

      Thanks for the suggestion.

      I agree that another video or article on Weeklys is a good idea.

      As far as exit strategies are concerned, keep in mind that Weeklys are the same as the final week in a Monthly contract…exit strategy opportunities are limited due to the logarithmic nature of time value erosion (Theta).

      Weeklys have their pros and cons, and although I personally prefer Monthlys, I believe that success can be achieved with Weeklys as well.

      Thanks to all our members who continue to provide our BCI team with ideas for articles and videos. I currently have a long list of member recommendations, and 5 months of articles already written and in the queue for publication.

      Alan

  3. Jay April 22, 2017 10:51 pm #

    My compliments to the contributor who formulated the dividend and covered call strategy used in this blog. I wish him/her continued success!

    Not conceptually afield of it I find myself gravitating to ways I can get some dividend, growth and income with fewer transactions.

    I am a lazy old retiree. If I start juggling a lot of positions I’ll surely drop them :).I view my asset allocation as a pyramid. The base is indexes with covered calls. As I move higher I add condors, spreads, growth stocks and finally option buys at the top decreasing the capital risked as I move higher. But I limit it to the indexes and a handful of stocks I feel I know.

    To me a perfectly solid IRA base is 50% SPY, 25% QQQ, 15% TLT and 10% GLD selling 1% OTM calls every month on all four.Then go up the risk ladder from there. – Jay

    • Roni April 23, 2017 5:39 pm #

      Hi Jay,

      Your pyramid sounds like a very healthy strategy.

      Can you tell us what is the average total percentage you achieve with your ETF trades ?, or at least your targets ?

      Roni

      • Jay April 23, 2017 8:53 pm #

        Thanks Roni,

        My pyramid idea is not original – it has been around a while :)!

        Being retired I like to create a cash flow from relatively low risk sources. So I use high volume ETF’s. look at where the 1% return is on the covered calls and often sell there. Most of the time that will be OTM with some upside as well.

        As I move up the pyramid and risk ladder I’ll buy growth stocks and trade higher risk/reward options strategies but always with an ever diminishing amount of money on the table.

        I hope our friends realize how insightful your question is. You asked what I achieve versus what I target? Those are very different things!

        The market determines what we achieve. No amount of covered calls will save a sinking ship though they may keep it afloat longer!

        In most market conditions if I target 1% initial monthly return OTM I will escape with my skin and pay my bills :). – Jay

        • Roni April 24, 2017 10:33 am #

          This is a great result.
          You pay your bills “working” at home, in your pajamas, and having lots of fun while doing so.
          Much better than watching TV and feeling bored. 🙂

          Roni

          • Jay April 24, 2017 12:35 pm
            #

            Thanks Roni,

            I had to stop walking the dog in my pajamas at all hours of the day because the neighbors thought it unbecoming of the Community :). I now put on appropriate clothes first :)!

            My hat is off to and I salute any retiree who can do it on interest and dividends. I can’t. I need options income.

            It does not mater whether covered calls, cash secured puts, selling condors, buying or selling directional spreads, ITM calls or puts. When you trade options in an IRA it’s all income withdrawn later.

            I never sold options in a cash account. Just straight buys with a capital gain or loss. Selling must be a tax nightmare! – Jay

  4. Barry B April 22, 2017 11:09 pm #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 04/21/17.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    Since we are in Earnings Season, be sure to read Alan’s article,
    “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:

    https://www.thebluecollarinvestor.com/constructing-your-covered-call-portfolio-during-earnings-season/

    Best,

    Barry and The BCI Team

  5. Eme April 23, 2017 1:09 am #

    Alan,

    I have about 500 pounds to invest in cover call option any suggestion.

    regards

    Eme

    • Alan Ellman April 23, 2017 8:53 am #

      Eme,

      If we are talking $600 – $700 US dollars, proper diversification is not possible. However, the learning process can start today (I know you have already started the process and kudos to you for that). In the interim, you can build portfolio value by “indexing” as described in my book, “Stock Investing for Students”

      Once portfolio value reaches $10k – $15k we can move into covered call writing with exchange-traded funds and then eventually into ccw with individual stocks.

      Take your time but it is important to continue the learning process while building portfolio worth.

      Alan

  6. Bill April 23, 2017 2:55 am #

    I wanted to comment. I like the clear cut teaching style in your videos; I’ve watched several of them. but unfortunately for us people with small accounts, your style of investing would need quite a substantial cash outlay to make any kind of profit, since we’d be tying up larges sums of money in the underlying stocks.

    Am I wrong?

    Bill

    • Alan Ellman April 23, 2017 9:13 am #

      Bill,

      I’m happy to respond. See my response to Eme above…

      You are 100% correct that covered call writing requires purchasing 100 shares per contract of the underlying stock or exchange-traded fund (the latter, a strategy I use in my mother’s portfolio). For ETFs, we would need between $10k – $15k for proper diversification. For individual stocks, between $35k – $50k. The learning process can start now.

      To build an appropriate portfolio net worth, you may want to consider indexing, where we dollar-cost-averaging with low-expense ratio, broad market index funds. This is the basis of my book “Stock Investing for Students”, currently required reading at The University of Maryland, Ramapo College and many other schools in the US.

      This is exactly the blueprint I used when I first started self-investing.

      Alan

  7. Stephen April 23, 2017 5:12 am #

    Dr. Ellman,

    I have been trading covered calls for some time. I am looking for a strategy for dealing with a down trending stock. It seems that I either have to wait until it rebounds or take a loss while I am trying to put my money back to work.

    Rolling down frequently results in a called-out equity loss. Do you address the issue in any of your other books, blogs or website. I did not see that topic in your Exit Strategies book.

    Thank you for your time.
    Stephen

    • Alan Ellman April 23, 2017 9:34 am #

      Stephen,

      Exit strategy execution is detailed with specific examples (in addition the “Exit Strategies” book) in both versions of the Complete Encyclopedia, and in our Covered Call Writing and Exit Strategy DVD programs.

      We use our 20/10% guidelines for declining stock values, then decide between waiting to “hit a double”, rolling down or selling the stock.

      Rolling down may or may not result in a realized or unrealized loss, but when it does, it usually will mitigate a larger potential loss.

      Alan

      • Terry April 24, 2017 9:19 am #

        Alan;

        I have a follow up question on the down trending stock. Suppose you have a few, not all, of your positions in ETF’s which are now in a down trend. What if you expect them to recover? Can you initiate a portfolio override position selling OTM calls and rolling these month to month until the underlying recovers?

        Thanks;
        Terry

        • Alan Ellman April 25, 2017 9:00 am #

          Terry,

          Absolutely. If our analysis projects an uptrend moving forward, selling OTM calls is a sensible approach. The goal should be to generate income and cash flow rather than recovery of security price because it is the cash we care about, not the underlying security and we leave it in our portfolios because we feel it gives us the best chance to succeed.

          Selling a losing position is one of the most difficult trades for retail investors but when we master when to let go, it will make us more successful investors.

          Alan

  8. Justin P. April 23, 2017 7:51 am #

    Personally speaking, a pretty good return on (mostly) paper trades on selected BCI list stocks for the contract period of 2.2% with the S&P500 down about 1% during that period. In retrospect I probably should have played LITE with ITM trades only since that stock was so volatile, in which case the profit would have probably been above 3% (I removed STLD after I noticed their imminent E.R.) so I’m quite happy so far with the BCI stock selection 🙂

    I’ve found it handy btw to integrate the main BCI programs so that for instance I can update my Tax Report with a click of a button – it was my job for many years to come up with ‘Excel Solutions’ so I can’t see a spreadsheet without wanting to improve it.

    • Roni April 23, 2017 5:27 pm #

      Justin,

      2.2% ROO is probably the best premium for monthly covered calls. The risk/reward equation seems to be optimal.

      The market makers who know much more about each individual stock then we do, never give you more, unless there is some good reason for it.
      Actually, you do not need to look at sophisticated charts, or balance sheets to place your bets. All you need is check the ATM or near the money strike premium: If it is above 2.5%, it is getting dangerous.

      Roni

      • Justin P. April 23, 2017 9:31 pm #

        Roni,

        Yes the more conservative ROO’s do seem to usually be more optimal, though I’m occasionally encountering some higher ROO’s which seem to be offering temptingly outsized returns.

        An interesting example is YELP, which though not on the BCI list and with an ER in early May, has for instance the May $30 PUT strike giving a ROO of 4% with over 10% of ‘downside protection’ and the $29 strike with a ROO of 3.3% and a massive 13.4% downside protection. Now unless YELP’s ER is so bad that the stock crashes and burns, surely that represents a pretty good bet?

        Justin P.

        • Roni April 24, 2017 11:02 am #

          That is exactly what I mean Justin.

          YELP is a higher risk stock, plus the upcoming ER on May 4th increases the risk, and therefore the premium.

          Remember , the most important BCI rule is : Never sell calls/puts with expiry after ER.

          There is no telling how much a underlying stock can move (up or down) immediately after ER release. So we must avoid the extra risk.
          There are enough unexpected events that we cannot avoid, so we want to pass on the ones we can foresee. 🙂

          Roni

  9. Michael April 23, 2017 12:48 pm #

    Thank you for your continuing effort to provide education to option investors. I agree that weekly call writing is too tedious and subject to error to be used consistently.

    Instead I use a “double the dividend” strategy with high div payers like T or VZ and more recently QCOM and TGT. Protecting my core position with a low basis is goal one. I have more entry points to collect the lower needed premium and when the trend is clear, I can often hit a double.

    I also have shares in these stocks that I trade and use your basic mgmt techniques to maximize return. Due to the volatility of these stocks lately, its hard to know what is a fair price, so I stretched my strikes out 6-12 months for some shares and write near term ITM calls also. Selling puts can be used instead to earn the extra premium when the stock is rising on positive news or just momentum keeping the shares unencumbered.

    • Jay April 23, 2017 10:24 pm #

      Michael,

      For your additional buys above core holdings have you considered LEAPS and Poor Man’s Covered Calls to further maximize income on holdings? No dividends but they are always puny compared to options income anyway..

      There is a great Blue Hour about that and the subscription ranks blue chips monthly that all have LEAPS.

      I hold Jan 2019 LEAPS on SPY and QQQ as speculation. I do not cover them, at least not yet. I bought them at the highest 1.0 delta strike available months ago so they would go up dollar for dollar. They have been great investments.

      But leverage is leverage and I’ll get clobbered if we crash! – Jay

  10. MarioG April 24, 2017 6:23 am #

    France Election:
    Found a great way to get the latest live info on the France election is to go to :

    http://www.france24.com

    Select “Watch Live” link in the Top Left

    Notice there are English and French Links on the top right, but it defaulted to English for me.

    Great commentary!

    Mario G.

  11. Barry B April 24, 2017 1:11 pm #

    Premium Members,

    The Weekly Report has been revised and uploaded to the Premium Member Website. Look for the report dated 04/21/17-RevA. There was a typo and as a result, PLAY has been removed from the Watch List.

    Best,

    Barry and The Blue Collar Investor Team

  12. Tim April 25, 2017 2:51 am #

    Hi Alan and All,

    While using the Elite Calculator,
    I noticed that some of the ITM strikes give me a negative ROO.
    Is that a key point to not use that equity if the ROO is negative?
    Just virtual trading now.

    Thanks
    Tim

    • Alan Ellman April 25, 2017 9:12 am #

      Tim,

      The deeper in-the-money the strike, the more the time value component of the premium moves to “0” Throw in the “shrinkage” from the bid-ask spread,. we can get a “0” to negative ROO.

      The best way to deal with this issue is to set an initial time value return goal for the time frame of the contract. For Monthlys, it will usually be between 1-4% depending on personal risk tolerance.

      Check available strikes and enter into the calculator then select based on the strikes that meet your goals.

      Alan

  13. Richard April 25, 2017 6:14 am #

    Love your material! I’ve been selling naked buts for the last 10 months in Canadian Bank Stocks. Finished the last 10 months with 6.8% return. Looking to up my return to 1% per month following your material.

    Paper trading from the watch list now.

    Thanks again,

    Richard

    • Alan Ellman April 25, 2017 11:14 am #

      Richard,

      So glad to hear. Keep up the good work.

      Alan

  14. Alex April 25, 2017 8:46 am #

    Hi Alan,

    I am eyeing up buying EDU & CDNS which have just released earnings. How long should I wait after an earnings report before I can enter in?

    Kind regards,
    Alex

    • Alan Ellman April 25, 2017 11:23 am #

      Alex,

      Watch the price action. If it is volatile initially after the report, wait for that volatility to subside. Usually, the next day. I also suggest avoiding entering positions early in the morning or late in the afternoon when computerized institutional trading may cause a more volatile, higher-risk environment.

      Alan

  15. Alan Ellman April 25, 2017 11:18 am #

    Reports/earnings:

    High Dividend Yield Stocks with LEAPS Report

    May Blue Chip Report (Dow 30 stocks)

    Recently uploaded to your member site.

    Yesterday the market popped mostly in reaction to French elections. Today another pop due to positive corporate earnings. Both positive signals for us.

    Alan

  16. Paulette April 25, 2017 12:15 pm #

    Alan,

    I have been using your spreadsheet for about 2 weeks (Very Helpful). Friday, May 21 I had several short puts that were assigned to me. I would now like to sell calls on these positions.

    1. When entering the “Stock Purchase Price” into the spreadsheet, should I enter the assigned amount or the “discounted price” to reflect the most accurate info?

    2. Would I do the same for previously “expired” covered call positions? I have just been entering the “original purchase amount”.

    I have also been using you “Put” Calculator, (also very helpful).

    1. Will there also be a similar spreadsheet coming out for that in the future?

    It would be nice to be able to track the puts in the same manner.

    Thanks,
    Paulette

    • Alan Ellman April 25, 2017 3:22 pm #

      Paulette,

      1- When we enter a new position, to make the best decision at that point in time, we use the assigned price. For tax purposes, we would use different stats (see the Schedule D of the Elite Calculator).

      2- If an option expires out-of-the-money, we can sell the stock or write another call. To compare apples-to-apples we must use the share price at that point in time.

      3- Yes, we are working on several more trading tools in addition to the free basic tools on the general site and the expanded tools in the member site. These ultimately will be uploaded in the “resources/downloads” section of the member site and we will email our members when those tools become available.

      Alan

  17. Jeffrey April 25, 2017 12:42 pm #

    Dr. Ellman writes that he trades contracts about half more or less in the money. How are these contracts selected? In the Encyclopedia entry for deep in the money strikes a rough guide is given of 2%. IS there more reference material I am missing?

    • Jay April 25, 2017 3:32 pm #

      Hey Jeffrey,

      Alan can and always does speak for himself.

      To my eye I look for 1% initial return for the month on sold options. That usually gives the underlying running room. – Jay

    • Alan Ellman April 26, 2017 9:43 am #

      Jeffrey,

      The initial return goal will vary from investor-to-investor depending on trading style and investments goals. I look for 2-4% initial time value returns in my portfolios and 1-2% in my mother’s (ETFs). Once you have your objectives clarified, then check the options chain for ITM strikes that meet those goals. Most strikes will not be deep ITM or deep OTM but rather near-the-money.

      Alan

  18. Ray April 26, 2017 9:19 am #

    My question:

    When do you write a call in relation to when you buy the stock i find that if i write the call immediately after purchasing the stock my stock usually goes up a few points and the option goes the other way and it very seldom comes back to make me want to write a call at all. Do you time your call writing based on indicators or what?

    Ray

    • Alan Ellman April 26, 2017 10:04 am #

      Ray,

      Once we have an established watch list of elite-performing eligible securities, we buy the stock or ETF and sell the option simultaneously early in the contract month. If we delay, Theta (time value erosion) will eat away at our time value initial profits.

      Once the trades are entered, we then move into position management mode, looking for exit strategy opportunities to mitigate losses and enhance gains.

      Alan

  19. Alan Ellman April 26, 2017 5:41 pm #

    Blue Hour 5: Evaluating Mutual Fund Portfolios and Financial Advisors

    Plus: The Top 5 Option Questions from 2016

    Thursday April 27th
    9 PM ET

    This is a 2-part webinar presentation:

    1: Many of us hold portfolios of actively-managed mutual funds that we’ve either selected ourselves or, more likely, been based on financial advisor advice. This webinar will provide a user-friendly technique to evaluate the performance of these portfolios and hence the performance of our financial advisors.

    We should commend those advisers who are out-performing the overall market and certainly question those who are under-performing the market and charging us fees to fall short.

    “Indexing will be defined and explained and a system to set up comparison charts (FOR FREE) will be highlighted.

    2: The BCI team has gone through thousands of questions sent to us in 2016 and selected the top-five most frequently asked questions to ask and answer in the second part of this webinar.

    As always, written questions will be answered live by Barry Bergman, the BCI Director of Research, while Alan hosts the presentation. Members who attend live will have access to the live Q&A.

    Login to the member site

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    Click the April 27th link to register

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    https://www.thebluecollarinvestor.com/the-blue-hour-april-27/

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  20. spindr0 May 29, 2017 5:49 pm #

    Dividend capture does not generate income.

    There is no advantage to purchasing a stock to capture a dividend. because with the reduction of share price by the amount of the dividend on the ex-div date, you are effectively being paid with your own money. It is a return of your own money. If this takes place in a non sheltered account, all you have achieved is a taxable event.

    Dividend strategies require the stock to recover by the amount of the dividend for the dividend to become real income. Otherwise, you just have a dividend and a reduced stock price, the sum of which is equal to the value your position had at the prior close, before the ex-dividend date. A dividend does not increase the value of your position.

    Read this:

    http://www.investopedia.com/ask/answers/137.asp

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