When we roll-up our cash-secured put trades, we are required to place additional cash into our brokerage accounts to secure the higher strike 2nd trade. This article will detail how to accurately calculate both initial and rolling-up trades using the BCI Trade Management Calculator (TMC).
Real-life example with Super Micro Computer, Inc. (Nasdaq: SMCI)
- 5/16/2023: SMCI trading at $142.11
- 5/16/2023: Sell 1 x $135.00 (OTM) 6/202023 put at $4.09
- 5/18/2023: SMCI now trading at $161.29
- 5/18/2023: BTC 1 x $135.00 6/2/2023 $135.00 put at $2.00
- 5/18/2023: STO 1 x $140.00 6/2/2023 put at $4.65
SMCI: 10-day price chart showing the 2 trade dates
SMCI: Pre-rolling calculations
Note the following:
- The initial return is $409.00 or 3.12%
- The capital required to secure the put is $13,091.00 [(put strike – put premium) x 100]
TMC showing both initial and rolled-up trades
Note the following:
- Top Section: We enter data at the time of the initial trade and rolling-up exit strategy. $2.65 represents ($4.65 – $2.00)
- Middle Section: The return on the 1st trade is 3.12% and on the second, 1.93%. The spreadsheet will reflect a 2nd investment of $13,735.00 (brown cells), which includes the original $13,091.00, so a capital adjustment will need to be made to enable us to accurately calculate total portfolio % returns
- Bottom Section: Confirms that if no other trade adjustments are made, the returns are 3.12% + 1.93% before capital adjustments to accurately assess total portfolio returns (both trades combined)
TMC: Capital adjustment section
Note the following:
- Section 1: Before using the capital adjustment section, the total portfolio investment inaccurately reflects a total investment of $26,826.00 and a total portfolio return of 2.51%
- Section 2: In the capital adjustment section, we enter a -$13,091.00 (brown cell in mid-section- hard to read in chart), since that amount is already included in the $13,735.00
- Section 3: After using the capital adjustment section, the total capital invested now reflects the accurate amount, $13,735.00 (brown cell on bottom) and a final total portfolio return of 4.91%
Discussion
When rolling-up our cash-secured put trades, additional cash is required to secure the higher put strike. When using 2 lines in the TMC spreadsheet for initial and rolling-up trades, the capital adjustment section must be utilized to get accurate total portfolio % returns.
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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:
Alan,
Your notes on the premium report 1st page, especially the BCI comments, have really helped in this current market.
My trades are all positive gains in the short time I have been using the Trade Management Calculator. In the money calls are managed so much better now.
Thanks,
JB
Upcoming events
1. Orlando Money Show Live Event
45-minute workshop: Monday October 30th 2:10 PM ET – 2:55 PM ET
Selling Cash-Secured Puts and Strategy Choices After Exercise
2-hour MoneyMasters Class: Tuesday October 31st 9:30 AM ET – 11:30 AM ET
How to Master Covered Call Writing:
A detailed start-to-finish analysis using real-life examples.
Details & Registration information here.
2. BCI-only webinar (all invited to our 500 Zoom maximum)
Thursday November 9, 2023
8 PM ET – 9:30 PM ET
Scroll down and then Click Here to register”.
Selling Cash-Secured Puts: Multiple Applications
Selling cash-secured puts is a low-risk option strategy geared to generating cash-flow, but always with capital preservation in mind.
This presentation will detail the strategy, incorporating the 3-required skillsets necessary to achieve the highest levels of returns … stock selection, option selection and position management.
If we allow exercise of the put options, shares are put to us at a price we agreed upon. What is our next step? This seminar will discuss potential paths we can take and the rationale behind these decisions, using real-life examples and calculations.
Q&A will include covered call writing, cash-secured puts and related strategies.
Zoom link will be sent to all those who register.
3. AAII Orange County, California Chapter
AAII Investment Club members only
Saturday November 11, 2023
Details to follow.
4. Long Island Stock Traders Meetup Group
Thursday February 15, 2024
7:30 PM ET – 9:00 PM ET.
Details to follow.
Alan,
I watched all your CEO strategy, but it seems it does not comply with my needs, because it has lower return (with lower effort).
Let me ask you a a question. You normally setup your positions OTM (or ATM) in general. May I ask how many percentages of your positions (on average) does not need any form of rolling or adjustment and will take profit 80 or 90 percent of total credit including stock appreciation?
Regards,
Keivan
Keivan,
1. (% returns): If we were to visualize a spectrum of risk/reward for our investments, one end of the spectrum could be Treasuries, CDs, money markets etc. (no risk, low returns) to the other end, could be lottery tickets (high risk, almost wasting your money/incredibly high returns).
Traditional covered call writing and selling cash-secured puts are much closer to Treasuries and a galaxy away from lottery tickets.
The CEO strategy is a conservative form of covered call writing, where risk and reward are lower than those of traditional option-selling. It is also a streamlined approach to covered call writing, where time and effort are reduced as is expected returns. Different strokes, for different folks.
2. (” Moneyness” of sold options): I also consider ITM call strikes in certain market conditions.
3. (Frequency of the need for exit strategies): For traditional covered call writing, it is quite common because we can integrate these contract adjustments for a myriad of reasons, both positive and negative. For the CEO strategy (as per my 9th book), there may be 2 – 3 months out of a calendar year, when there will be no need exit strategy integration.
4. (% where 80% – 90% profit is realized): In normal to bull markets, this is quite common. In extreme bear or volatile markets, it is not. I don’t have a specific % for you but I can say that selling options with these conservative strategies will allow us to beat the market on a consistent basis, many times significantly, assuming the 3 required skillsets are mastered (stock selection, option selection and position management).
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 10/27/23.
The report was uploaded early this week because Alan and I are at the 2023 Orlando MoneyShow through Tuesday. If you are in the area, please stop by our booth and say hello. We’re in booth # 507.
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:
https://www.youtube.com/user/BlueCollarInvestor
Reminder: Premium Member’s pricing is locked 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
Alan,
I do not understand, when you trade cash covered call or cash secured put, and fulfill your account, does your broker charges you for interest?
Or brokers charges interest only for margin being used if any? (As I know, you do not use margin at all).
I appreciate for your kind reply.
Kevan
Kevan,
Brokers will charge interest for margin accounts (not a big fan for most retail investors, not all) and shorting stocks (same).
For cash accounts, brokers make money from market-makers, cash left in our accounts and small option commissions. They also hope to sell us products with fees built into them (mutual funds, annuities, as 2 examples).
Alan
Alan,
I appreciate your prompt responses and your valuable feedback.
I have a question about the CEO’s performance.
In your YouTube seminar, you said that the CEO achieved a return of more than 15% in 2022, despite the market downturn of 20% that year. That was a very difficult year for the industry.
Is that correct?
Thanks again,
Roland
Roland,
In 2022, the CEO Strategy outperformed the S&P 500 by > 15%. It did not achieve a final return of 15%.
Here is a quote from page 257 of my book, “Covered Call Writing: A Streamlined Approach”:
“Because 2022 was a down year overall, the CEO Portfolio outperformed from start-to-finish. My expectation of an 8% – 10% beat turned out to be 15.37%. The average per-month “beat” was 1.28%, better than the anticipated average of 0.67% – 0.83%.”
My CEO portfolio was down 1.27% for the monthly contracts in 2022, while the S&P 500 was down 16.64% in that same timeframe.
Alan
Premium members:
This week’s 4-page report of top-performing ETFs has been uploaded to your premium site. The Select Sector SPDR section is now crafted to align with our streamlined (CEO) approach to covered call writing. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.
Premium member video link:
https://youtu.be/EXMO-KwZuJs
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