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.

Premium member benefits video

https://youtube.com/watch?v=EXMO-KwZuJs%3Ffeature%3Doembed

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.

Regards,

Robert

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.

Alan speaking at a Money Show event*********************************************************************************************************************