“Hitting a double” involves buying back the short call using our 20%/10% guidelines and then re-selling that same option when share price recovers. On 3/13/2019, Mario was kind enough to share with us his trades with SPDR S&P Biotech ETF (NYSE: XBI) where he astutely applied this exit strategy.
Hitting a double trade overview
- 2/26/2019: 300 shares XBI purchased at $90.25
- 2/26/2019: Sell-to-open 3 contracts of the April 21, 2019 $92.00 calls at $1.50
- 3/6/2019: Buy-to-close the $92.00 calls at $0.15 (10% guideline)
- 3/13/2019: Sell-to-open the $92.00 calls at $0.55
- 3/21/2019: XBI price is $91.69 at expiration
- 3/21/2019: $92.00 calls expire worthless
XBI: Classic V-Shaped Chart Pattern
XBI: Chart Pattern When “Hitting a Double”
BCI Trade Management Calculator: XBI trade entry
XBI: Enter Initial Trade Stats
BCI Trade Management Calculator: XBI initial calculations
XBI: Initial Trade Structuring
The spreadsheet shows an initial time-value return of 1.70%, 11.28% annualized based on a 55-day trade with an additional upside potential profit of 1.90% if share price moves up to the $92.00 out-of-the-money call strike.
BCI Trade Management Calculator: XBI adjustment entries
XBI: Hitting a Double Trade Adjustments
Hitting a Double generated a new credit of $40.00 per-contract ($55.00 – $15.00); $120.00 for the 3 contracts (less tiny trade commissions).
BCI Trade Management Calculator: XBI final results
XBI: Final Results at Expiration
The final trade result after trade adjustments is 3.70%%
Discussion
The Hitting a double exit strategy improved an initial time-value return of 1.70% to a final return of 3.70%. This includes an unrealized share appreciation of 1.60%.
For information on the BCI Trade Management Calculator, click here.
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:
Alan,
I’ve been trading options since June of last year and have been looking for more technical training and more details on accounting and loss, so I found your material especially helpful. I’m interested in your trade management approach as I don’t find other resources cover these important topics very well, if at all.
Thank you,
John
Upcoming events
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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Alan,
I really like your 10 delta strategy for put selling.
I started using the pcp strategy (love that one too).
My question is would you consider rolling up a put strike ( if stock price goes a lot higher) to a strike with a higher delta than 10 if we are using pcp?
If exercised, I would simply write a covered call.
Thanks a lot.
Sharon
Sharon,
Yes. If our plan is to retain the security through (at least) the next expiration cycle, we can roll-up to a strike with a Delta higher than 10. That strike should still be out-of-the-money to create some protection should the stock price decline.
Our 10-Delta strategy is applied when one of our mission statements is to avoid exercise.
Alan
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 07/08/22.
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]
Alan,
I joined your premium service 6 months ago and I find it incredibly useful for both the reports and educational videos. Thank you.
I do have a question. Why produce weekly reports for stocks and etfs if you suggest monthly contracts?
Thanks again.
Stan
Stan,
Thank you for your generous comments.
The main reasons we produce these reports on a weekly basis:
1. We do have several weekly strategies available in our BCI arsenal and, although I do prefer Monthlys, I dedicate a small percentage of my portfolios to Weeklys.
2. Many of our BCI members use Weeklys.
3. I we close a position mid-contract; we have the latest data available to select a replacement security.
Alan
Alan,
I have a question about the 3% rule. You mention in your books about closing out a cash-secured put position when the stock goes 3% below the strike price.
Now with the PCP methodology, it is OK for the stock price to decline below the strike price. Do you still have use the 3% rule to close it out before option expiration? Is that the loss limit for PCP puts?
Thank you.
Bill
Bill,
Yes, leave the 3% guideline in place for PCP. This assumes using OTM puts with strikes that generate monthly initial time-value returns of 2% – 4%.
This mitigation tactic will align (although not precisely) with our 7% guideline as when to sell a stock in a covered call trade (after closing the short call).
I deliberately call these “guidelines” and not “rules” to give the investor some flexibility. If we really like the underlying security, we can veer a bit, but not too far. Losing a small percentage of our capital is no fun, losing a substantial percentage is painful.
Alan
Alan,
Thanks for the reply. I got it.
Bill
Premium members:
The latest Blue Chip Report of the best-performing Dow 30 stocks for the August contracts is now available on your member site.
Look on the right side in the “resources/downloads” section and scroll down to “B”
Alan & the BCI Team
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
Alan,
TD Ameritrade says that you must hold the security through the entire ex dividend date (until the next trading day) in order to qualify for the dividend.
This seems a little fishy, given that a lot of information online suggests otherwise. I wonder if this varies by broker.
Thanks,
Graham
Graham,
This is surprising. If we own the shares when market opens on the ex-date, we are eligible to receive the upcoming dividend even if shares are sold during that ex-date.
If shares are purchased on the ex-date and sold that same day, we are not eligible for the upcoming dividend distribution.
I would call TD and ask to speak with a different rep or a supervisor to confirm or correct the information you received.
Please share any updated information.
Alan