Comments on: Evaluating a Portfolio from a Numerical Perspective https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/ Learn how to invest by selling stock options. Sat, 21 Jul 2018 11:18:51 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170808 Wed, 11 Jul 2018 10:26:41 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170808 In reply to Jim.

Jim,

Great responses from Jay and Mario.

As a general guideline to enhance portfolio returns, we favor OTM strikes for stocks that have the strongest technicals and ITM strikes for stocks with mixed technical (we are not interested in securities with bearish techicals). This allows us to factor in trend, momentum and volume into our strike selection as well as our stock selection.

Your question is such an important one because subtle nuances like strike selection and “laddering strikes” based on security performance and chart technicals, is what allows us to be among the best-performing option-sellers…anywhere.

Alan

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By: MarioG https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170807 Wed, 11 Jul 2018 10:26:10 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170807 In reply to Jim.

Jim,

With regard to the “an equal number of in-the-money and out-of-the money strikes” in the weekly report, it refers to the proportion of stock symbol covered call trades that is recommended for the current market tone..

Just because you have Earning Report the next month is not the reason to select an ITM or OTM strike. If a covered is OTM at Expiration, it expires worthless, and you sell the underlying the next week or wait till you are near Earnings Report date if the stock is trending in your favor for additional profit.

As far as how I determine whether to select an ITM or OTM position or whether to invest at all a particular stock symbol, depends on several factors:
* Run List – Positive (Bold in run list) or mixed technicals. Positive – good candidate for OTM if numbers and target goals are right – see below.
* Market – Current downturn or dip in market – IF stock has dipped as well, may be time for an OTM selection to get both Static and share appreciation returns, Trending up – Sometimes an ITM better choice unless stock has a good trending up history.
* Earning Reports – not in current cycle – see run list, verify at online sites (earningswhisper, brokers, other sites) if see contradicting information.
* Analyst sentiment / summary scores / company information – Analyst sentiment or score may contradict run list status but I do not let that deter me completely from selecting the stock. It is in the run list after timely and rigorous screening.
* Option table strikes values available (Some stocks increment by 1, others increment by 5, etc.)
* Industry – am I diversifying as recommended or do I stray away from that?
* Price of stock with respect to the ITM and the OTM strikes available
* Price chart (trending up – good candidate for OTM, flat for an extended period – good candidate for ITM
* Is the current price near the ITM or OTM strike (If near the OTM – picking iTM strike would not yield a good return, If near the ITM strike – best return and OTM strike probably not meet initial target return
* Breakeven (Is it favorable to me when looking at the price chart, even for an ITM opporturnity with its downside protection, I look at the breakeven to see where it falls)
* Volatility (large swings, smooth trend, I look for a good history to increase my chances of success – otherwise look for another opportunty.
* Return – Meet your target goals?, If trending up, maybe positive technicals, and the OTM strike available does not meet your return goal (0.4% for example because it is nearer the ITM strike, I would buy the stock and wait for the stock to rise to yield a better OTM return, then you win because you have a lower cost basis and lower breakeven for the stock.

Just some suggestions.

Mario

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By: Jay https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170661 Wed, 11 Jul 2018 02:16:33 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170661 In reply to Jim.

Hi Jim,

Alan will likely get back to you with a better answer than mine but since I have asked myself your very question many times I hope you do not mind if I chime in!

The easiest solution is if you have 200 or more shares of any position than you can split strikes in each. Or only cover half and let half run uncovered. Buy let’s say a person has 100 shares each of 6 stocks diversified in six different S&P sectors as defined by the XL series of ETF’s. Maybe one is from XLF, XLU, XLP, XLY, XLK and XLV. Then a way I have used is look at which sectors are doing best and favor those as the OTM candidates. In this case at this time the later three are doing better than the former three so I would lean more OTM on those and ITM on the others to hit a strike ITM/OTM ratio target.

If your positions are sector concentrated as can often happen when focusing on what is outperforming at the time you replace stocks each month and write again than it becomes more of a matter of how you feel about your holdings not worth over working. The market often moves like the tide lifting and lowering boats simultaneously!

Glad you here with us bloggers! – Jay

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By: Jim https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170508 Tue, 10 Jul 2018 19:42:29 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170508 Alan,

I’m a new BCI premium subscriber.

I often read in the BCI report that BCI has “an equal number of in-the-money and out-of-the money strikes” or some other ratio of ITM to OTM strikes. How does an investor decide what stocks would be good to write OTM options on and which ones to write ITM options on? If a stock has an Earnings Release coming up in the next month, would that be a good reason to choose an ITM strike (because as a BC investor you’re going to sell the stock anyway at the end of the current options contract)?

Thanks,
Jim

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By: Alan Ellman https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170467 Tue, 10 Jul 2018 18:05:47 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170467 In reply to Dave.

Dave,

Our weekly stock reports are segmented by contract month, not by calendar month. On the most recent report, eligible stocks for the July contracts started under the solid black line with TRU and ended with TTGT for the current contract month but not the August contracts until those reports pass (dates given),. ROST through ADBE are eligible for August contract month as well (below broken black line).

So, the black lines delineate contract month and each report reflects status for the current contract month no matter how close to expiration we are.

Alan

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By: Dave https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170460 Tue, 10 Jul 2018 15:54:07 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170460 Alan,

I’m new to your service and am finding it very helpful. I do have a question, though. You say in your video that all of the stocks in the white area of the weekly report are eligible for covered calls but all of them show earnings reports coming up in the next month. I think I’m missing something here, or maybe misunderstanding something. It seems to me that if an earnings report is coming up in the next few weeks (as is the case with the listed stocks) that they would not be eligible candidates for covered calls. Can you clarify this for me?

Thanks and best regards.

Dave

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By: Hoyt T https://www.thebluecollarinvestor.com/evaluating-a-portfolio-from-a-numerical-perspective/#comment-170386 Tue, 10 Jul 2018 14:35:16 +0000 https://www.thebluecollarinvestor.com/?p=16787#comment-170386 In reply to Jay.

Absolutely!

Remember the old saying, “Different strokes for different folks”?

I also like the old saying, “Missing a stock (or option) is like missing a bus. Just wait at the bus stop, there will be another one coming shortly”

May the trend be your friend,

Hoyt

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