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Entering and Adjusting Our Covered Call Trades Using the BCI Trade Management Calculator: A Real-Life Example with WBA

Entering, managing and archiving our covered call writing and put-selling trades are critical to our overall success as well as allowing us to learn and benefit from our investment history. To demonstrate how to achieve a high level of organization and management of our trades, this article will highlight a real-life series of trades with Walgreens Boots Alliance, Inc. (Nasdaq: WBA), shared by a BCI member, using the BCI Trade Management Calculator.

 

WBA trades from 4/25/2022 – 5/19/2022

  • 4/25/2022: Buy 200 x WBA at $44.30
  • 4/25/2022: STO 2 x 6/17/2022 $47.50 calls at $0.82
  • 4/29/2022: BTC the 6/17/2022 $47.50 calls at $0.16 (20% guideline)
  • 4/29/2022: Buy 100 x WBA at $42.82
  • 5/16/2022: STO 3 x 6/17/2022 $47.50 calls at $0.37 (hitting a double with 200 of those shares)
  • 5/19/2022: BTC 2 x 6/17/2022 $47.50 calls at $0.52 (ignoring our 20% guideline with 200 shares)
  • 5/19/2022: STO 2 x 6/17/2022 $45.00 calls at $1.25 (rolling-down with 200 shares)

 

Initial trade entries, trade adjustment and initial trade returns

 

WBA Trades with the Trade Management Calculator

 

Top third of image

  • The initial trade is entered for 200 shares
  • The 2nd trade is entered for 100 shares on a separate row
  • The rolling-down trade for 200 shares is entered with the option premium being a net credit of $0.73 ($1.25 – $0.52)

Middle third of image

  • The initial adjustment was selected as “buy back option/keep stock”
  • Once the option was re-sold at the same strike, that was changed to “hitting a double/keep stock”
  • The “hitting a double” aspect is considered closed and the spreadsheet will reflect the returns for that aspect of the series of trades for these 200 shares. No further entries are needed

Bottom third of image

  • The rolling-down aspect of the series of trades with the initial 200 shares is entered on a separate line
  • The cost- remains the original $44.30, and the option credit is the difference between the BTC and STO premiums, $0.73 in this case
  • The spreadsheet will reflect an additional investment of $8860.00 despite the fact that we are still working with the original $8860.00 investment for the 200 shares
  • The total capital invested is shown as $22,002.00 when it should be $13,142.00. This will require an entry in the capital adjustment section

 

Capital adjustment to maintain the accuracy of our calculations

 

Trade Management Calculator: Capital Adjustment Section

Entering a negative $8860.00 will result in our total capital invested to be an accurate figure, $13,142.00, in this case.

 

Discussion

Proper trade entries and adjustments will result in accurate initial and final calculations as well as assist us in learning from and archiving our trades in a user-friendly and time-efficient manner. The BCI Trade Management Calculator was developed specifically for these reasons and has an unparalleled ability to accommodate a myriad of trade adjustments and scenarios.

 

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This is a great time to join our premium member community with its and educational (over 200 videos) benefits. We offer more benefits than ever before. For information, click here.

For video explanation, click here.

 

How The Blue Collar Investor got started: Money.net interview

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI teaemail 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:

Alan,

I can only say that your program and educational tools are a great value.

Thanks,

Kent

 

Upcoming

To request a private webinar for your investment club, hosted by Alan & Barry: [email protected]

1. Mad Hedge Traders and Investors Summit

Thursday December 8th at 12 PM ET (registration link to follow)

Free virtual webinar

Covered Call Writing: Multiple Applications Based on Current Market Conditions

Real-life examples with Invesco Trust (Nasdaq: QQQ)

 Covered call writing is a low-risk strategy geared to generating cash-flow with capital preservation as a key requirement. This presentation will demonstrate how the strategy can be crafted to succeed in all market environments.

Market situations highlighted are:

  • Normal-to-
  • Bear and volatile markets
  • Low interest rate environments

This webinar will include specific methods to set up ultra-low-risk paths to set up trades with 84%+ probability of success.

 

2. Long Island Stock Traders Meetup Group (Private webinar)

Analyzing a 1-Month Covered call Writing Portfolio from Start to Finish

Thursday February 16,2023

7:30 PM ET- 9 PM ET

A real-life example with a $100k ETF Select Sector SPDR portfolio
Covered call writing is a low-risk strategy that generates weekly or
monthly cash flow. This presentation will demonstrate how to implement this
strategy using a database of only 11 for a 1-month option
contract cycle. These are real-life trades taken directly from one of Dr. Ellman’s
portfolios with screenshots verifying each trade. A final monthly contract result
compared to the performance of the S&P 500 will be calculated.

Topics included in this webinar:

 What are the Select Sector SPDRs?
 How to establish a covered call writing portfolio
 What is the role of diversification?
 What is the role of cash allocation?
 Calculating initial returns
 Analyzing each trade in the monthly contract
 Final results
 Next steps

 

Alan speaking at a Money Show event

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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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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.

12 Responses to “Entering and Adjusting Our Covered Call Trades Using the BCI Trade Management Calculator: A Real-Life Example with WBA”

  1. Arnie November 19, 2022 4:16 am #

    Alan,

    When you are bullish on the market, do you stay with your initial goal of 2 -4%? How about bearish?

    Thank you.

    Arnie (premium member)

    • Alan Ellman November 20, 2022 7:12 am #

      Arnie,

      Yes, our initial time-value return goal range remains constant whether bullish, bearish or neutral in most market conditions. For me, it’s 2% – 4% in normal market conditions and that range can vary from investor-to-investor based on strategy goals and personal risk-tolerance.

      In extreme bear and volatile conditions, I may employ one of our ultra-low risk strategies using Delta and/or implied volatility, where are return goals are reduced.

      Alan

  2. Jim November 19, 2022 5:10 pm #

    Hello Alan –

    Do you keep your weekly and monthly contracts on the same spreadsheet? Seems to me I would want to keep these on separate spreadsheets.

    When entering the rolled-out trade in the next contract cycle should I use the stock price at the time I executed the BTC or the close of day stock price?

    Thanks Alan.
    Jim

    • Alan Ellman November 20, 2022 7:32 am #

      Jim,

      I dedicate a TMC (Trade Management Calculator) spreadsheet to each contract cycle as you suggest in your question. On my desktop, I have a blank TMC (TMC_BLANK) and from that one, I create additional spreadsheets based on expiration dates (TMC_11-18-2022; TMC_12-16-2022 etc.). When a contract cycle is concluded, I place that spreadsheet into a folder (TMC_2022).

      When rolling an in-the-money (ITM) call option, we enter the final stock’s unrealized value (at the time of the roll) as the ITM strike because that is, in fact, what the shares are worth at that time due to our contract obligation to sell at that price. That will conclude that month’s final results which will be reflected in the spreadsheet’s final post-adjusted stats.

      We enter the rolling aspect of the trade into the next cycle’s spreadsheet. We use the initial call strike as the current value of the stock and the combined net buy-to-close and sell-to-open rolling premiums as the premium for the next contract cycle. For rolling- out, this will result in a net option credit.

      For example, if a stock is trading at $52.00 and we are closing a $50.00 call strike at $2.10 and rolling to the next month’s $50.00 call for a premium of $3.50, we enter a stock price of $50.00 and a premium of $1.40 ($3.50 – $2.10).

      For more detailed information on rolling a covered call trade as it related to our Trade Management Calculator (TMC), see Appendix IV in my newest book, “Exit Strategies for Covered Call Writing and Selling Cash-Secured Puts”

      Information is also found in the individual rolling chapters of the book and in the TMC user guide.

      Alan

  3. Barry B November 19, 2022 9:54 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 11/18/22.

    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

    Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as the membership remains active.

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]

  4. Jim November 20, 2022 5:14 pm #

    Hello Alan –

    Thank you for posting these trade entries. They are very helpful. With respect to the WBA trade, please help me to understand how the spreadsheet arrived at “Initial Option Return $347.” Thanks.

    • Alan Ellman November 21, 2022 6:17 am #

      Jim,

      Sure. Before I provide the specific mathematical breakdown, let me confirm the portion of the spreadsheet alluded to in the article and reason it was highlighted:

      These are “initial”, pre-adjusted returns. The post-adjusted final returns are found on the right side of the spreadsheet in the 4th section scrolling left to right. The purpose of this particular screenshot is to highlight the importance and significance of the capital adjustment section of the TMC to provide accurate data regarding total cash invested which will allow for authentic % returns.

      Now the math (top to bottom on the top section of the 1st screenshot in the article):

      $0.82 x 200 = $164.00

      $0.37 x 100 = $37.00

      $0.73 x 200 = 146.00

      Adding these 3 figures for the total “initial” option return [$] = $347.00.

      Alan

  5. Ken November 21, 2022 1:04 am #

    Hi Alan,

    In the BCI system, do we apply the 10%/20% guidelines the same way when selling ITM calls as when selling OTM calls?

    With OTM calls we apply the guidelines to the extrinsic value only, since these options have no intrinsic value.

    Do we apply the 10%/20% guidelines for ITM calls to just the extrinsic value rather than the whole option premium?

    Please explain why or why not.

    Thanks and best regards
    Ken

    • Alan Ellman November 21, 2022 6:45 am #

      Ken,

      The 20%/10% guidelines apply to the total premium, with or without intrinsic-value.

      The reason has to do with the Delta of ITM and OTM strikes. One of the definitions of Delta is the amount an option value will change for every $1.00 change in the price of the underlying security. Delta is higher for ITM strikes and will reduce premium values quicker.

      If we used the time-value component only for ITM strikes, it would trigger a call to action much too late.

      Let’s say we bought BCI at $48.00 and sold the $45.00 call at $4.50. Of that $4.50, $3.00 is intrinsic-value (amount the $45.00 strike is lower than current market value) and $1.50 is time-value. If we used 20% of $4.50 (the way it’s done at BCI), the threshold to close the short call is $0.90.

      If we used the time-value component only of that $4.50 premium, the 20% BTC limit order would be set at $0.30 (20% of $1.50).

      The call to action is much quicker using the entire premium as the higher Delta of ITM strikes will allow us to compensate for the intrinsic-value components.

      As a rough, non-scientific (but useful, in my humble opinion) exercise, let’s say the Delta of the $45.00 strike is 65:

      To get to the $0.90 threshold, BCI would have to drop by approximately $5.50 per-share.

      To get to the $0.30 threshold, BCI would have to drop by $6.46 per-share.

      The warning signal comes earlier using the entire premium of ITM strikes.

      I recognize the fact that Delta will change as the strikes moves closer to the money but the general concept should answer the question why we include intrinsic-value in our calculations.

      By the way, I appreciate your excellent question. This will be an excellent topic for a future blog article.

      Alan

  6. Cornelius November 22, 2022 10:15 am #

    Dear Mr. Ellman,

    I am currently reading your complete Encyclopedia for Covered Call Writing. On one page of the book you mention the (at that time) newly introduced weekly options and that it will be interesting to see how they will perform and whether can be used in covered call writing.

    Thus, I would like to ask you if you have any further information on the subject concerning risk, profitability or any other specifics?

    What are your experiences with using weekly options and would you prefer them to monthly options or just integrate them in the strike laddering process?

    I am looking forward to hearing from you.

    Best regards

    Cornelius
    Neu-Ulm, Bavaria

    • Alan Ellman November 23, 2022 6:48 am #

      Cornelius,

      The number of options available has grown and continues to do so over the years due to investor demand. This includes weekjly options. I favor monthly options, but I do have a couple of my option-selling portfolios dedicated to weekly options.

      Here are the pros & cons of Weeklys:

      Positives:

      •Annualized returns can be higher
      •Can avoid exposure over weekends
      •Can generate greater premium as earnings report dates are approached and trade up to and around the week of earnings
      •Can circumnavigate around ex-dividend dates

      Negatives:

      •The pool of stocks with Weeklys is much smaller than those with Monthlys potentially resulting in lower-quality underlyings
      •Management is much more time-consuming as “rolling” possibilities come up every week
      •Less time for exit strategy execution
      •Quadruple the number and amount of commissions (minor factor)
      •Lower option liquidity (generally)
      •Wider bid-ask spreads (generally)

      Alan

  7. Alan Ellman November 23, 2022 5:09 pm #

    Premium members:

    This week’s 5-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.

    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

    Happy Thanksgiving from:

    Alan, Barry and the BCI team

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