After entering our covered call trades and share price rises substantially, there are often opportunities to generate a 2nd inc0me stream by closing both legs of the original trade and entering a new one with a different underlying security. In the BCI methodology, this is known as the Mid-Contract Unwind (MCU) exit strategy. This article will highlight an example of this strategy using Nucor Corp. (NYSE: NUE). The BCI Trade Management Calculator will show trade entry, initial calculations, trade adjustments and final results.
MCU trade overview
- 7/25/2021: Buy 100 x NUE at $96.87
- 7/25/2021: STO the 8/20/2021 $95.00 ITM call at $4.90
- 8/6/2021: BTC the 8/20/2021 $95.00 call at $9.70
- 8/6/2021: Sell 100 x NUE at $104.28
- 8/6/2021: With 14 days remaining to contract expiration, the cash available from selling the NUE shares is now available for a 2nd income stream in the same contract cycle
BCI Trade Management Calculator: NUE trade entry
NUE: Initial Trade Entries
BCI Trade Management Calculator: NUE initial calculations
NUE: Initial Covered Call Calculations
The spreadsheet shows an initial time-value return of 3.20%. Since the option sold was in-the-money, no additional profit can be gleaned from share appreciation.
BCI Trade Management Calculator: NUE adjustment entries
NUE: MCU Trade Adjustment Entries
BCI Trade Management Calculator: NUE final results
NUE: Final Returns After Trade Adjustments
The final trade result after trade adjustments is 2.75%
Discussion
The MCU exit strategy resulted in a time-value cost-to-close of 0.45% (3.20% – 2.75%). We use this exit strategy when we can generate at least 1% more than this time-value cost-to-close or 1.45% or higher, thereby initiating a 2nd income stream with a similar cash investment. Note that we must have cash available in our portfolios to close our short option positions when exit strategy opportunities are available.
Information on the BCI Trade Management Calculator
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Your generous testimonials
Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:
Dear Alan,
I have bought a lot of different items … books, calculators etc. from you and your fine organization … learned a lot. In my opinion, you’re the best in the business … congratulations.
Best,
Dennis
Upcoming events
1. Wealth365 Summit
Tuesday July 12th, 2022
4 PM ET – 5 PM ET
Selling Cash-Secured Puts
Exit Strategy Choices After Exercise of Cash-Secured Puts
Selling cash-secured puts is a low-risk option-selling strategy which generates weekly or monthly cash flow by agreeing to buy shares at a price we determine, by a date we determine. In return for undertaking this obligation, we are paid a cash premium. We only sell puts on shares we would otherwise want to own and, if exercised, and shares are put to us, they are purchased at a discount from the price when the put trade was initiated.
This presentation includes an introduction to option basics, defines selling cash-secured puts and provides real-life examples. The focus of the webinar details the steps available to put sellers should the put be exercised, and we now own the discounted stock or ETF shares. The seminar includes a discussion of the PCP (put-call-put or wheel) Strategy and the Stock Repair Strategy among other exit strategy opportunities.
2. Money Show Orlando live event
October 30th – November 1st, 2022
OMNI ORLANDO RESORT AT CHAMPIONSGATE
Visit Alan, Barry and members of the BCI team at Booth # 415
Masters Class
Comprehensive Course on Selling Cash-Secured Puts
Detailed start-to-finish 6-part program
This presentation will provide all the information, with real-life examples, necessary to master the strategy of selling cash-secured puts. The program is divided into 6 sections:
- Section I:
- Option basics
- Section II
- Traditional put-selling
- Section III
- PCP (wheel) strategy
- Section IV
- Buy a stock at a discount instead of a limit order
- Section V
- Ultra-low-risk put/Delta strategy
- Section VI
- Ultra-low-risk put/Implied volatility strategy
This presentation was developed to benefit both beginner and experienced option traders and will provide all the information needed to initiate the strategy and elevate returns to the highest possible levels.
45-minute presentation
Covered Call Writing: Multiple Applications Based on Current Market Conditions
Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)
Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:
- Normal to bull markets
- Bear and volatile markets
- Low interest-rate environments
A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.
Registration link and more details to follow.
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Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.
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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 07/01/22.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
http://www.youtube.com/user/BlueCollarInvestor
Best,
Barry and The Blue Collar Investor Team
[email protected]
Hi Alan,
I joined your service this week and had some questions. I am looking over the weekly stock screen and watch list for 6/24, just practice really until your one comes out for 7/1.
I have just over 10K so I am looking at the ETFs list and found 3 that I am interested in trading. Your videos said to have 5 stocks in different sectors if I were to go with individual stocks. Am I good with only 3 ETFs in that respect?
Also, I can do CC or CSP -cash secured puts on them. Looking at the numbers, I will bring in $150 a week if I do CSPs and about double that if I do CCs. With the roller coaster the stock market has been lately, which would you advise?
I am not sure if you are ok with us asking these types of questions but I thought I’d take a shot at it.
I have to tell you that your service is the last piece that I needed for my plan so I am excited for the next trading day.
Thank you,
Bryan
Bryan,
Welcome to our BCI premium member community.
Yes, 3 ETFs in different sectors will provide adequate diversification.
In bear and volatile market conditions, we can use both CCW and CSPs. We tend to favor ITM calls and deeper OTM puts when we seek more defensive positions. We can also combine both (Put-Call-Put or PCP Strategy) where we first sell OTM puts before entering covered call trades. Here is a link to an article I published on this topic:
https://www.thebluecollarinvestor.com/using-the-put-call-put-pcp-strategy-to-create-downside-protection-on-steroids/
On the member site, we have “Blue Hour” webinars and “Ask Alan” videos (scroll down on the left side for both) related to this topic.
I also suggest you read our “Emergency Management Report” white paper I wrote, located in the “resources/downloads” section of the premium site.
I just produced this video tour of the premium site:
https://www.youtube.com/watch?v=EXMO-KwZuJs
Please keep in touch.
Alan
Premium Members,
The Weekly Stock Report has been revised and uploaded. Look for the report dated 07/01/22_RevA. The “cut and paste” page was accidentally deleted. The current version (RevA) has all of the pages. This update has not impacted any of the stocks listed in the report.
Best,
Barry
Alan, just an FYI so you know. I signed up for the Wealth 365 Summit a couple of years ago so I could hear your talk. And since I was signed in, I listened to several others as well. But holy cow, two years later I’m still fighting the “SPAM” from that summit. No matter how many times I hit unsubscribe, some of the groups just keep sending me stuff. And they sold my email address to other groups who send me stuff. I heard some good seminars but given the spam that has followed for two years now, I’d never sign up for it again.Steve
Steve,
I understand your concerns.
In early 2020, when COVID turned our lives upside down, live seminars came to a halt. I was traveling 10x + per year to cities throughout the US and then, all of a sudden, none.
In response, various vendors began investing their time and money to set up virtual events. They turned to their database of preferred speakers, and I was one of them. Speakers do not pay to participate but we are asked to promote the events. So, what’s in it for them? They capture email addresses to promote their products and services. That’s the tradeoff.
The benefit for the BCI community is that they provide a platform for our members to receive free education. The benefit to BCI is that we get to provide additional education to our community and many more. The vendors capture our email addresses.
My team and I had several discussions regarding the pros & cons of accepting these invitations and ultimately decided that participating offered more benefits than disadvantages. I must say that if and when a speaker declines an invitation, there are dozens waiting in line hoping to get an opportunity.
Unwanted emails are a part of our lives. I receive dozens per day in both my business and personal accounts. I “unsubscribe” 5, 10 maybe 20 times a day.
I know our decision will not work for the entire BCI community. My hope is that it will be understood and perhaps even embraced by most.
Thank you for your feedback and apologies for any inconveniences.
Alan
Alan,
I always enjoy and learn so much from your online sessions. I also plan to come to your live seminars in Orlando in October.
Thanks for all you and your team does for retail investors.
Marsha
Premium members:
This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.
The mid-week market tone is located on page 1 of the report.
New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://www.thebluecollarinvestor.com/membership.shtml
Alan and the BCI team