When we plan our covered call writing and cash-secured puts trades, we must focus in on diversification and cash allocation. In order to accomplish these goals, in April 2023, BCI introduced the BCI Portfolio Setup Spreadsheet with our CEO streamlined approach to covered call writing. This article will detail how the spreadsheet can also be used when establishing our cash-secured put portfolios. We will assume a cash available amount of $100,000.00 and will use 3 securities.
Entry share prices for calls and puts
For covered call writing, we enter the share price we paid for the securities or its current market value at the time of the trades. For put-selling, we enter the amount of cash our brokers require us to place into our cash accounts to secure the put trade, per-share. The formula for the cash required is:
[(put strike – put premium)]
Real-life example with 3 Select Sector SPDRs (current price) on 4/20/2023
- XLE (Energy): $86.24
- XLB (Materials): $81.51
- XLF (Financials): 33.44
Step #1: check put option-chain (XLE shown)
XLE Option Chain on 4-20-2023
The $83.00 out-of-the-money put strike shows a bid price of $1.07. Here are the strikes, bid prices and net amounts [(put strike – put premium)] we will factor into the spreadsheet:
- XLE: $83.00 strike at $1.07 ($81.93)
- XLB: $80.00 strike at $1.23 ($78.77)
- XLF: $33.00 strike at $0.43 ($32.57)
Information entered into the top portion of the Portfolio Setup Spreadsheet
Portfolio Setup Spreadsheet Top Section
The spreadsheet shows a guideline range for a cash reserve of $2,000.00 – $4,000.00 for potential exit strategy executions.
Information entered into the blue cells in the lower portion of the Portfolio Setup Spreadsheet with resulting calculations
Portfolio Diversification and Cash Allocation Results
Note the following spreadsheet calculations (appear once blue cells are populated):
- Each position has $33,333.33 allocated
- Based on current price-per-share, the # of shares that can be secured for put sale is calculated (407 for XLE)
- The spreadsheet will round up or down to the nearest 100 (1 option contract = 100 shares: 400 for XLE)
- This # will also determine the # of contracts to be sold (4 for XLE)
- The cash required to secure these rounded shares is calculated ($32,772.00 for XLE)
- The total investment (all 3 positions) is calculated ($96,850.00)
- Cash reserve for exit strategies is calculated ($3,150.00)
- ***The spreadsheet allows for adjustments if our guidelines are not met)
Discussion
The BCI Portfolio Setup Spreadsheet can be used for both covered call writing and selling cash-secured puts. For puts, we use the [(put strike – the put premium)] as our entry prices (cash requirements). This will allow us to adhere to our diversification and cash allocation portfolio requirements.
NEW Softcover Book: Discount Coupon
The softcover version of my 9th book, Covered Call Writing: A Streamlined Approach, is now available in our BCI store at the link below.
We are offering an early-order discount:
Use coupon code ceo5 and click on “submit” or “apply” for a $5.00 discount:
https://thebluecollarinvestor.com/minimembership/covered-call-writing-a-streamlined-approach/
I hope you enjoy and benefit from my latest book.
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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,
Thank you! Thank you!
What a super presentation!
We really appreciate it!
We will definitely leave you an outstanding review with AAII HQ.
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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
Zoom link will be sent to all on our mailing list as event approaches.
Join our mailing list on the blog link of this site- right side scroll down.
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 and when 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 on our mailing list as event approaches.
3. AAII Orange County, California Chapter
AAII Investment Club members only
Saturday November 11, 2023
Details to follow.
Hello Alan,
Just finished reading your recent book (How to consistently beat the market using our CEO Strategy) and will be implementing this approach over the next few weeks starting with $100,000.
I was thinking of a minor modification to the strategy: if portfolio balance is above my starting balance ($100,000) at the end of expiration Friday, I would only use $100,000 to reinvest over the best performing four or five ETFs for the next month.
If the portfolio is below $100,000 at end of expiration Friday, I would use that amount to allocate over best ETFs for next month.
Any money above $100,000 at the end of expiration Friday would be removed and considered profit for “other use”.
Would you expect much difference in results with this modification compared to the strategy you lined out in your book where you reinvest the entire amount of portfolio every month?
Thanks,
Doug
Doug,
Since I did not implement this precise approach, I’ll offer an “educated expectation:
1. I expect a similar % return in the CEO aspect of your portfolio, a lower $ return.
2. The overall portfolio return will depend on the success, or lack thereof, of the investments outside the CEO strategy.
3. It will be difficult to track the comparison returns of CEO versus the S&P 500.
If you decide to implement this alternative CEO strategy approach, please keep in touch and let us know how you’re progressing.
Alan
Alan,
When you select a strike for puts, do you use the same methods you use for covered calls? Based on time value returns? I’m new to BCI and finally understanding how options work!
Jordan
Jordan,
Yes, with one caveat. Let’s say our pre-stated initial time-value return goal range for monthly expirations is 2% – 4% per-month. For puts, we look for out-of-the-money (OTM) strikes that align with that goal.
For calls, we can look at both OTM and in-the-money (ITM) strikes, depending on overall market assessment and personal risk tolerance.
The one constant is that we must adhere to the pre-stated initial time-value return goal range.
In our BCI methodology, we target only OTM put strikes almost all the time. There are a few exceptions to this “guideline”.
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 09/22/23.
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
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
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Alan and the BCI team