beginners corner

Evaluating Pre- and Post-Market Opening Calculations; A Real-Life Example with The Simply Good Foods Company: (Nasdaq: SMPL)

Preparing for our initial covered call writing and trades starts pre-market. After developing a watchlist of eligible securities, we turn to the option-chains to determine if initial time-value returns align with our stated goals. Market-makers will be a bit hesitant to publish bid-ask spreads that are in our best interest until they can determine market direction and flow. Therefore, the calculations we run pre-market will typically be different after the market opens than prior to traditional trading hours. Although different, they will usually be “in the same ballpark”, so this exercise is useful and timesaving. I recommend entering initial trades between the hours of 11 AM ET and 3 PM ET to avoid early morning and late afternoon institutional computerized trading. This article will highlight statistics taken prior to market open on 4/25/2022 and at 13:30 PM ET on that same day using The Simply Good Foods Company (Nasdaq: SMPL).

 

SMPL pre-market calculations using the BCI Trade Management Calculator (trading at $42.25)

 

SMPL: Calculations Before Market Opens on 4-25-2022

 

  • Brown cells: $40.00 ITM strike (initial return 1.88%, 26.32% annualized, 5.33% downside protection)
  • Green cells: $45.00 OTM strike (initial return 1.30%, 18.27% annualized, 6.51% upside potential)

 

SMPL post-market opening calculations using the BCI Trade management Calculator (trading at $41.91)

 

SMPL: Post-Opening Calculations on 4-25-2022

 

  • Brown cells: $40.00 ITM strike (initial return 2.35%, 32.00% annualized, 4.56% downside protection)
  • Green cells: $45.00 OTM strike (initial return 1.43%, 20.10 annualized, 7.37% annualized)

 

Comparison spreadsheet

 

SMPL: Calculations Differences Pre- and Post-Market Opening

 

  • The post-opening 26-day and annualized returns were higher for both the ITM and OTM strikes
  • The downside protection for the ITM strike was lower for the post-opening calculations
  • The upside potential was higher for the post-opening OTM strike

 

Discussion

Pre-market calculations are useful preliminary exercises when creating our trade structuring decisions. Final decisions are made during normal market trading hours when option pricing and -ask spreads provide the highest degree of accuracy.

 

Premium Member Benefits Video

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

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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 have been learning as much as I can about in the past year and have been trading for real for approximately 9 months. I am up overall even in a very challenging thanks to your teaching and wisdom. Your books and videos have made all the difference. I am a premium member and devour the weekly updates and learned a lot about spreadsheets.

I own my own financial advisory practice up here in Canada. Hope one day to meet in person at one of your live events.

Cheers,

John

 

Upcoming events

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

1.Money Show Orlando live event (This weekend: Sunday, Monday & Tuesday)

October 30th – November 1st, 2022

OMNI ORLANDO RESORT AT CHAMPIONSGATE

Visit Alan, Barry and members of the BCI team at Booth # 415

Register here

 

Sunday, October 30, 2022, at 5:00 pm – 5:45 pm EDT
Covered Call Writing: Multiple Applications Based on Current Market Conditions

Monday, October 31, 2022, at 4:30 pm – 6:30 pm EDT
Selling Cash-Secured Puts: Detailed Start-to-Finish Six-Part Program*

 

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

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 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 Trus, will be used to establish rules and guidelines to benefit in these market circumstances.

Registration link 

 

2. Money Show’s Post-Election Strategies Virtual Expo

November 10th

2:10 ET – 2:40 ET

Register here

Portfolio Overwriting

Increasing Profits in Our Buy-And-Hold Portfolios Using Covered Call Writing 

Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.  Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance using a low-risk covered call writing-like strategy.

Topics discussed

  • Brief review of covered call writing
  • Option basics
  • What is an option-chain?
  • Option selection
  • Calculating covered call returns: Real-Life examples
  • Portfolio overwriting defined
  • Pros and cons of portfolio overwriting
  • Why early exercise is so rare
  • Rolling options
  • Role of dividends
  • Locating ex-dividend dates
  • How to avoid early exercise
  • Real-life examples with calculations
  • Summary

Date, time & registration link to follow

Registration link

 

3. Mad Hedge Traders and Investors Summit

Thursday December 8th (tentative date; time and topic to follow)

Free virtual webinar

 

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

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 option-selling 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

***********************************************************************************************************************

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.

8 Responses to “Evaluating Pre- and Post-Market Opening Calculations; A Real-Life Example with The Simply Good Foods Company: (Nasdaq: SMPL)”

  1. Greg October 29, 2022 2:11 am
    #

    Alan,

    I just bought your book. There are a couple of questions that I have and maybe I missed the answers in your book.

    What is the typical expiration date that you look to use when selling a covered call? Is it 30 days or months?

    Thanks in advance for any help you can provide.

    Greg

    • Alan Ellman October 29, 2022 6:48 am
      #

      Greg,

      I have multiple option-selling portfolios. Most use monthly expirations that expire at 4 PM ET on the 3rd Friday of the calendar month.

      I also use a few weekly strategies where contracts expire every Friday (Monday through Friday).

      I, generally, avoid longer-term expirations for several reasons. The 3 main reasons:

      1. Shorter-term expirations will generate the highest annualized returns.

      2. Shorter-term expirations will make it easier to avoid quarterly earnings reports, a golden rule of the BCI methodology.

      3. More opportunities to re-evaluate our bullish assumptions on the underlying securities.

      Alan

      • Greg October 29, 2022 10:48 am
        #

        Thank you, Alan. I generally go 1-2 months out.

        Greg

  2. Barry B October 29, 2022 8:50 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 10/28/22.

    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.

    PLEASE NOTE…For next week only…The Weekly Report will be based on the market close on Thursday and be uploaded on Friday.

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]

  3. Alan Ellman November 2, 2022 5:25 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

    Alan and the BCI team

  4. Barry November 4, 2022 1:34 am
    #

    Good Morning Alan.

    I just want to make sure my calculations are correct.

    I am now looking at call options for VPU. The underlying price is 142.985. the 146 strike for expiration Jun 16,2023(225 days) gives option of about 11. This is 7% which calculates to 11% over 1 year.

    I realize I will not gain if underlying stock is greater than 146 at that time. But considering this is a conservative etf with dividends and the seriously turbulent market I believe this makes good sense. Am I correct in my thinking.

    Thanks,
    Barry

    • Alan Ellman November 4, 2022 7:08 am
      #

      Barry,

      Your calculations are perfect.

      2 factors to explore:

      1. We can generate higher annualized returns using shorter-term options.

      2. VPU will go through 2 ex-dividend dates by 6/16/23, creating 2 possibilities of early exercise (rare but more likely than if no ex-date).

      Alan

  5. Barry B November 4, 2022 3:52 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 11/03/22.

    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.

    PLEASE NOTE…For next week only…The Weekly Report will be uploaded late Sunday afternoon.

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]