One of the three required skills for covered call writing and put-selling is the selection of the underlying security. Along with this we also must avoid quarterly earnings reports. Since most corporations report earnings in similar time frames (known as earnings season) the number of eligible candidates is dramatically reduced during these time frames. The BCI way is NOT to moan about these challenges but rather to develop a methodology to circumvent and overcome them. Here are some of the strategies we have developed regarding enhancing the number of eligible underlying securities during the heart of earnings season when employing monthly options:

  • Consider all eligible stocks in the “white cells” of our Premium Reports
  • Consider all eligible exchange-traded funds in our Premium ETF Reports
  • Use stocks that report in the first week of the contract period AFTER the report passes thereby still capturing three to four weeks of time value premium

In this article, I will discuss how to use Weekly-expiring options in conjunction with our Premium Reports to enhance the number of eligible stocks while still adhering to our rule of avoiding earnings reports.

 

Premium Report (page 3 shown) at the start of the November, 2015 contracts

using Weeklys during earnings seasn

Premium member Stock Report dated 10/16/2015

We will focus in on page 3 of this report with the understanding that there are a few more candidates on page 2. Please note the following:

  • The stocks highlighted in the gold rows at the top all report earnings during the November contracts (contract month, not calendar month)
  • The stocks in the white cells at the bottom of the screenshot do not report during the November contracts and are eligible for consideration.  Eight total with adequate option liquidity-OI)
  • The blue oval highlights the projected earnings dates for the stocks reporting during the November contracts
  • The red oval highlights those stocks that also have Weekly option expirations

 

Implementing the strategy

There are six stocks in the gold rows that also have Weeklys. Since this is a 5-week contract, each of these six securities will be eligible for four of those five weeks. Here is a breakdown of how we can use this approach to add more eligible securities:

 

covered call writing during earnings season

Covered call writing with Weekly Options

 

Discussion

By using our Premium Watch Lists and Weekly options, we can enrich the quality and quantity of eligible stocks during the heart of earnings season. All the required information is located on pages 2 – 4 of our Premium Reports.

 

Blue Collar Scholar Competition: 

The six winners will be published in the January 10, 2016 newsletter.

 

Upcoming live appearances

1- Saturday January 23rd, 2016: Kansas City, Missouri

9 AM – 12:30 PM

Matt Ross Community Center

 

2- New York Stock Traders Expo

February 21st – 23rd

Marriott Marquis Hotel, NYC

http://www.newyorktradersexpo.com/expert-details.asp?speakerID=891071A

 

Events calendar

 

Market tone

US economic indicators were modestly positive but global reports pointed to challenges regarding slower growth. Reflecting relatively calm markets, the Chicago Board Options Exchange Volatility Index (VIX) trended down to the 15 range after beginning last week near 20. This week’s reports:

  • The US economy grew at a revised annualized 2.0% rate in the third quarter, down slightly from the previously reported 2.1%, and down from 3.9% in the second quarter
  • Consumer spending provided strength, driven by a healthier jobs market and low fuel prices
  • The University of Michigan final December consumer sentiment index rose to 92.6 from 91.3 in November
  • Lower inflation helped increase real incomes and support demand for household durable goods
  • The average sentiment for 2015 was 92.9, the highest since 2004
  • US household incomes rose 0.3% in November after a 0.4% gain in October, according to the US Department of Commerce
  • Consumer spending also increased an inflation-adjusted 0.3% after holding steady in October
  • Disposable income rose 3.5% year over year while the core personal consumption expenditures index, the Federal Reserve’s preferred inflation gauge, rose 1.3%
  • Orders for nondefense capital goods orders excluding aircraft, a key proxy for business spending plans, fell 0.4% in November after a 0.6% gain in October. Overall capital goods orders were unchanged
  • Sales of previously owned homes fell by 10.5% in November, reportedly tied to new federal mortgage-disclosure rules that are causing delays in home sale closings. Evidence of this was confirmed by a 4.3% increase in purchases of new single-family homes, which were up 9.1% from a year earlier
  • Initial jobless claims dropped 5,000 to 267,000 for the week ending December 19th
  • Continuing claims dropped by 47,000 to 2.20 million for the week ending December 12th
  • US retail sales grew by 7.9% this holiday season, boosted by a 20% rise in online sales

For the week, the S&P 500 declined by 0.83% for a final end of the year return of – 0.73%%.

Summary

IBD: Confirmed uptrend

GMI: 3/6- Sell signal since market close of December 10, 2015

BCI: Cautiously bullish but maintaining a defensive posture selling at least 50% in-the-money strikes and deeper out-of-the-money puts. The market was flat to slightly down in 2015. For those of us who were able to generate a decent profit for the year selling options…congratulations as all ther hard work and due-diligence has paid off. For those starting out, the market historically rises by 8-10% which provides an environment much easier to generate significant returns.

The BCI team wishes you a happy and healthy New Year and a lucrative 2016,

Alan ([email protected]) and the BCI team