beginners corner

How to Enter Our Rolling-Out Cash-Secured Put Trades into Our Trading Logs + New Book Discount Offer

When we roll-out a cash-secured put trade, we are spanning 2 contract cycles. This article will detail how to enter and close our trades into our trading logs to best reflect the results over multiple time frames.

 

What is rolling-out an ITM put strike?

This is where we buy back (buy-to-close or BTC) the short put as expiration approaches and immediately sell the same strike put option in the next contract cycle.

 

When to consider rolling-out an ITM strike?

If a strike is in-the-money as expiration approaches, we may opt to roll the trade rather than close and exit the current option position. Reasons to take this approach include:

  • There is no upcoming earnings report in the next contract cycle
  • The underlying security still meets our system requirements (fundamental, technical and common-sense screens)
  • The rolling calculations do meet our stated initial time-value return goal range

 

Difference between rolling and existing an ITM put strike as expiration approaches

When we roll the option, we BTC (buy-to-close) the near-term strike and STO (sell-to-open) the next contract same put strike. If we decide to close the ITM strike and simply exit the trade, we only close the current put trade and look to establish a new cash-secured put trade (usually) with a different security at the start of the next contract cycle. Let’s use a real-life example with NVDA to demonstrate a rolling example.

 

How to enter our rolling trades into our trading log

Our current contract month trade is completed as initially structured. The initial time-value return is the same as the final time-value return. The current value of the underlying security is entered into our spreadsheet (trading log) as the only adjustment entry. The rolling-out trade is then continued in the next contract cycle where the current market value (ending value at expiration of the expiring contract) is entered, and the net option credit is also entered with the next expiration date. The net option credit consists of the new premium less the cost-to-close debit from the previous contract. This is shown in the upcoming screenshots.

 

Real-life example with NVIDIA Corp. (Nasdaq: NVDA)

  • 8/20/2021: NVDA trading at $208.16
  • 8/20/2021: STO the 9/24/2021 $200.00 put at $5.65
  • On expiration Friday, 9/24/2021, NVDA is trading at $199.00, leaving the original short put strike ($200.00) in-the-money.
  • BTC cost is $1.10
  • STO the next month $200.00 put is trading at $5.00
  • A decision is made to roll rather than close the trade

 

Initial trade return on option (ROO)

 

NVDA: Initial Trade Structuring

 

The Trade Management Calculator shows an initial return on the option of 2.91%, 29.48% annualized based on a 36-day trade. If exercise is allowed, shares would be purchased at a 6.63% discount from the price of NVDA when the put sales was initiated.

 

How is rolling-out the ITM strike managed with our BCI Trade Management Calculator?

The original put trade is considered closed by entering only the current price of the stock on expiration Friday ($199.00).

 

NVDA: Closing 1st Month Trade Before Rolling

 

Final calculations prior to rolling the ITM strike

 

NVDA: Final Current Month Calculations Before Rolling 

The spreadsheet will reflect the final time-value return to be the same as the initial time-value return (2.91%) as well as the same total net income of $565.00 for the 1 contract.

 

Entering the rolled-out trade in the next contract cycle

We enter the following stats into the next contract cycle:

  • Stock price: $199.00
  • Strike price: $200.00
  • Net premium: $3.90 ($5.00 – $1.10)

The spreadsheet will reflect the following initial calculations: 

NVDA: Rolled-Out Trade Entry

The calculator shows the following stats:

  • A 22-day return of 1.99% (brown cell)
  • An annualized return of 33.00% (green cell)
  • A breakeven price point of $196.10 (yellow cell)
  • A purchase discount of 1.46%, if exercised (pink cell)

 

Discussion

We consider rolling an ITM put strike when the security still meets all system criteria, and the calculations align with our stated initial time-value return goal range. The initial trade is closed reflecting the initial time-value return and the current security price and net option credit is entered into the next contract cycle.

 

New Book Discount Offer (through August 1st)

My new book, The Blue Collar Investor’s Guide to: Exit Strategies for Covered Call Writing and Selling cash-Secured Puts is now available in the BCI store. We are offering an early order $5.00 discount for the softcover version:

Use promo code: newesbook5

Click here for more information

 

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 name unless given permission:

Hello sir!

I stumbled upon your YouTube videos and have been hooked. I have tried to understand options trading for some time now, and it was because of you that I finally was able to get the basics down. For that, I appreciate your help!

Respectfully,

Sameer

 

Upcoming event

Money Show Orlando live event

October 30th – November 1st, 2022

OMNI ORLANDO RESORT AT CHAMPIONSGATE

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

 

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/ 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 QQQ Trust (Nasdaq: QQQ)

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

Registration link and more details to follow.

 

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.

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

 

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.

6 Responses to “How to Enter Our Rolling-Out Cash-Secured Put Trades into Our Trading Logs + New Book Discount Offer”

  1. Barry B July 23, 2022 9:59 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 07/22/22.

    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]

  2. Alexandre July 25, 2022 1:12 am #

    Hello Alan,

    Is it true that an investor can get a premium every week when doing covered calls? I’ve read that one can also get many thousand of dollars every week doing so.

    Also, what are your thoughts about dividend growth strategies compare to covered calls?

    Regards,
    Alexandre

    • Alan Ellman July 25, 2022 7:45 am #

      Alexandre,

      Covered call writing is a low-risk (not a no-risk) option-selling strategy that can generate cash flow on a weekly or monthly basis (other time frames, as well).

      The amount of cash generated is directly related to the amount of cash invested. As a reasonable example, one would have to invest $200,000.00 to generate $1000.00 per-week.

      Since we own the stock (or exchange-traded fund) prior to selling these cash-generating options, we are at risk of share depreciation. As with all strategies that seek to generate higher than a risk-free return (like Treasuries etc.), there is risk inherent in covered call writing. In addition to selling the option, we must master stock selection and position management after entering our trades. This is what we teach.

      Regarding dividend capture strategies, we can actually combine covered call writing + dividend capture.
      Here is a link to 1 of the articles I have published on this topic:

      https://www.thebluecollarinvestor.com/combining-dividend-capture-with-covered-call-writing-pros-and-cons/

      Alan

  3. Alexandre July 25, 2022 2:36 pm #

    Good afternoon Alan,

    Thanks for the quick reply. $200,000.00 to generate $1000.00 per-week. I’ve read on YouTube that one investor was generating $500.00 per-week when he started covered calls, six months later, he’s generating $6000.00 per-week. Could that be true without adding a certain amount of capitals along the way?

    By the way, I like the idea of having one separate account for each strategy.

    Regards,
    Alexandre

    • Alan Ellman July 26, 2022 6:29 am #

      Alexandre,

      The dollar return is irrelevant because it must be compared to the amount of money invested. A $6k weekly return on an investment of $10 million is extremely disappointing. That same return on an investment of $100k is reason to celebrate.

      Covered call writing is a low-risk option-selling strategy. Our returns are directly related to the amount of risk we are willing to take. These strategies give us the opportunity to generate solid consistent returns and to beat the market on a consistent basis. We will not win the lottery with covered call writing.

      Please be careful of promises of huge returns with little risk and minimal investment of time & money. Such a strategy does not exist.

      Alan

  4. Alan Ellman July 27, 2022 5:16 pm #

    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

Leave a Reply

Optionally add an image (JPEG only)