Selling covered calls and cash-secured puts lower our cost-basis and places us in a position to significantly beat the market. Mastering stock selection, option selection and position management are essential in achieving the highest levels of returns. These principles were crystalized with the series of trades, over a 54-day period, John shared with me. The stock used was Vertiv Holdings (NYSE: VRT). Notice how John implemented the 20%/10% guidelines and took advantage of rolling the options down or out.
What are the 20%/10% guidelines for covered call writing?
These are threshold guidelines where to set limit order instructions to our broker as when to buy back the short call if share price declines significantly. It is based on 20% or 10% of the entire original premium and depends on if we are in the first half of a monthly contract (20%) or in the last 2 weeks of a monthly contract (10%). 10% also applies to weekly contracts.
John’s VRT Trades: Overview
VRT Trades from 11/11/2024 – 11/18/2024
VRT Trades from 12/5/2024 – 1/4/2025
Option credits & debits and share debit
- Option credits total $2915.00
- Option debits total $303.00
- Share loss ($25,080.00 – $24,000.00) = $1080.00
- Net 54-day credit = $1532.00
Final calculations
- $1532.00 on a cost-basis of $25,080.00 represents a 6.1%, 41.29% annualized return
- $1532.00 represents a profit of $7.66/share
- Without options, the return would have been $0.71/share (Closing price of $126.11 – purchase price of $125.40)
Discussion
Selling call and put options conservatively, places us in a position to potentially outperform the market on a consistent basis. Mastering stock and option selection as well as position management will allow us to achieve the highest levels of returns. John’s VRT trades are perfect examples of these possibilities.
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Alan:
My question today is about Portfolio Overwriting Strategy.
A substantial part of my Portfolio consists of Index ETF”s against which I write Covered Calls (Overwriting).
My objective is to never have these calls be exercised. But on occasion the market leaps up to the point of possibly calls occurring.
The logical response to this is to roll out the option, which I do. So far so good!
But then the question becomes how high to set the new Call;?
One possibility is to select the new Call just as one would ordinarily with out further considerations, & accept.the additional cost resulting.
Or one could choose a lower value & minimize the additional capital reqd.
And of course there are numerous choices in between.
I would be most interested to hear your comments about the choices available.
As always I thank you in advance for any advice you care to offer,
Paul
Paul,
The key aspect of your question is “My objective is to never have these calls be exercised”.
It is critical when we establish our portfolio overwriting trades to identify the amount of exercise potential risk we are willing to take. We use Delta or implied volatility to quantify that risk.
Let’s say we identify the risk of a particular strike at 10%. This means that a small % of the time, we will need to roll our options.
After rolling the options, we establish our post-rolled strikes using the same risk factors. This means that it is possible to end up with a rolling net option debit. However, this will ensure that we retain the shares our primary objective and are in a position to avoid exercise potential for the next contract cycle.
Alan
Hi Alan,
I appreciate your sample trade on this page and also your YouTube of the same.
The weekly and monthly BCI stock reports are also very helpful.
I am awed at your pick of stock. Your white sheet list of stock already narrow down our choice of stock, but then how are you able find these gems within gems.
How to you narrow down even further from the white list. ie CLS!
I noticed you go to the BOLD stock a lot.
What things do you look at?
What pops up and catches your eye?
Then that the next thing gets your attention?
Sorry. I am just trying to get a better insight to better trading!
Thank you
Happy Trading!!
Ketan
Ketan,
The last trade, taken from one of my portfolios, I shared with premium members was with CLS. However, I sell between 100 – 150 contracts each month, so a large # of securities found in our premium member reports (stock, ETF and Dow 30) are used by me each month. I use both bold and non-bold but give preference to bold because those securities are the strongest from a technical (price chart) perspective. I should point out that all securities in our stock reports are elite performers, both bold and non-bold.
So, why CLS? See the screenshot below:
Bold, the strongest technicals
#6 on the IBD 50
Industry rank “B”
Mean analyst rating of 1.25-outstanding
Bullish On balance Volume (OBV)
Robust implied volatility (54.5%)
Adequate option liquidity
No interference from the upcoming earnings report
I shared this defensive cash-secured put trade with our premium members on Wednesday. I can report to you today that the put strike expired worthless and a maximum + gain was realized, which included a rolling-up exit strategy
Bottom line: I use all the stocks in the report, bold and non-bold, but will give greater consideration to bold stocks with industry rankings of “A” or “B” All are elite performers at the time the reports are crafted.
CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.
Alan
Thank you sir.
Looking forward to your next report and sample trade video.
Happy Trading!
Make It A Great Day!
Ketan
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 06/20/25.
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
Barry and The Blue Collar Investor Team
Premium members,
The quarterly High Dividend Yield Report has been uploaded to your member site.
Login and scroll down on the left side.
Alan & the BCI team
Premium members:
This week’s 4-page report of top-performing ETFs, along with our sample trade of the week, 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.
We have also included a sample trade taken from one of our BCI watchlists.
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