When we construct our covered call writing and cash-secured put portfolios, we must incorporate cash allocation into our investment decisions. In this article, The BCI Portfolio Setup Spreadsheet, the Trade Management Calculator (TMC) and the Premium Stock and ETF reports will be used to analyze the process.
What is cash allocation?
This is our mission to allocate a similar amount of cash for each position in our option portfolio. Since share price varies, based on the amount of cash available, the amount per position will rarely be precisely the same for each position, but we will be “in the ballpark”.
Securities selected from the BCI premium stock & ETF reports on 4/26/2024 for the 5/17/2024 expirations
- Alphabet Inc. (Nasdaq: GOOGL)- stock: $171.30
- Vertiv Holdings Co. (Nasdaq: VRT)- stock: $93.49
- ICICI Bank Limited (NYSE: IBN)- stock: $26.53
- Pure Storage, Inc. (NYSE: PSTG)- stock: $52.95
- Rev Group, Inc. (NYSE: REVG)- stock: $21.24
- Global X Silver Miners ETF (NYSE: SIL)- ETF: $31.95
- Global X Copper Miners ETF (NYSE: COPX)- ETF: $47.52
BCI Portfolio Setup Spreadsheet ($150k cash available):
Entries in blue cells and spreadsheet calculations in white cells
- With $150k available, we will allocate approximately $21,428.57 per-position
- There are 21 days to contract expiration
- Using the BCI 2% – 4% guideline for cash reserve needed for potential exit strategy executions, we will need between $3k – $6k (spreadsheet calculations $4,403.00 will be available-yellow cell)
- The spreadsheet clearly guides as to how many shares should be purchased and the number of contracts sold (for cash secured puts, shares are not purchased)
- If the calculations did not work out on this initial attempt, the spreadsheet allows for an adjustment, which was not needed in this scenario
Portfolio initial calculations using the BCI Trade Management Calculator (TMC)
- Yellow cells: Breakeven price points
- Brown cells: Initial 22-day returns
- Pink cells: 22-day returns annualized
- Green cells: Additional potential % returns if share price moves up to or beyond the out-of-the-money call strikes
- Total portfolio initial 22-day return is 2.46% with an additional 5.45% upside potential
- $3583.00 cash was generated selling these 37 contracts
Discussion
Cash allocation is an essential aspect to our option portfolio construction process. In addition to diversifying the securities in our portfolios, we are also dedicating similar amounts of cash per position.
Selling Cash-Secured Puts Basic and Advanced Principles
Selling Cash-Secured Puts is a 6-part Video Series + downloadable workbook. All aspects of Put-Selling, including stock selection, option selection and position management. A huge section on exit strategies and a deeper dive into ultra-low risk approaches to selling cash-secured puts have been added to previous versions of this course. The Companion Workbook contains 111 all-color pages of all charts, graphs and slides. Download Table Of Contents (PDF)
This course contains 6- parts in the video course:
Section I: Option basics (definitions and foundational information)
Section II: Traditional put-selling (stock & option selection + position management)
Section III: PCP (wheel) strategy (adding covered calls to selling cash-secured puts)
Section IV: Buy a stock at a discount instead of a limit order (buy a stock at our target price or get paid not to buy the stock)
Section V: Ultra-low-risk put/Delta strategy (High probability, low-risk trades)
Section VI: Ultra-low-risk put/implied volatility strategy (High probability, low-risk trades)
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 publish several of these testimonials in our blog articles. We will never use a last name unless given permission:
Barry,
Thank you so much for your perfect work!
Thanks for the 5-star support!
Best,
Juergen
Upcoming events
1. Stock Traders Expo- live event in Orlando Florida: 3 presentations:
- Selling Cash-Secured Puts
- Two Covered Call Writing Strategies (Dividend Capture; Streamlined approach)
- Portfolio Overwriting (All Stars of Options event)
2. American Association of Individual Investors/ Los Angeles Chapter
November 9, 2024
12 PM ET – 1:30 PM ET
Private webinar for members of this AAII investment club
3. Young Investors Club: University of Central Florida
Wednesday November 13, 2024
Private investment club
4. BCI-Only Webinar
Zoom
Thursday November 21, 2024
8 PM ET – (:30 PM ET
Covered Call Writing Dividend Stocks
Details & registration link to follow.
5. Long Island Stock Investor Group Part I
Zoom
February 13, 2025
7:30 – 9:00 ET
Details to follow.
6. Las Vegas Money Show
February 17 – 19, 2025
details to follow.
7. Long Island Stock Investor Group Part II
March 13, 2025
7:30 – 9:00 ET
Details to follow.
Alan,
I use mainly cash secured puts. When entering prices in the BCI Portfolio Setup spreadsheet, what prices should I enter? Current price of the stock? Strike price?
Thanks,
Jordan
Jordan,
For purposes of cash allocation and diversification, in the column, “price ($) per share enter the following dollar amount:
[(put strike) – (put premium)]
The spreadsheet will do the rest of the work in determining the # of put contracts to sell.
When doing initial trade calculations using the BCI Trade Management Calculator (TMC), enter the actual share price at the time of the trade.
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 10/04/24.
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 you will never see a rate increase as long as the membership remains active.
Alan and I will be attending and presenting at “The 2024 Orlando MoneyShow” from Wednesday, 10/16/24 through Saturday, 10/19/24. As a result, The Weekly Stock Screen And Watch List for 10/18/24 will be uploaded either late on Sunday night, 10/20/24, or early Monday, 10/21/24.
Barry and The Blue Collar Investor Team
Alan,
I recently purchased the BCI package and started with the covered call writing video course. I’m learning so much, Thank you.
I have 2 questions for now:
1. Which is the best book to start with?
2. I have an IRA with $75,000. In the video you say to invest in sheltered accounts, if possible. This will be my starting point. Should I favor stock or etfs if I use all $75,000?
Thanks for your support.
John
John,
Start with “The Complete Encyclopedia for Covered Call Writing- classic edition)”. You can use this book in conjunction with the online course. Once you master all the information in these 2 resources, you will know more about covered call writing than most stockbrokers.
With $75k cash available, you can use either stocks or ETFs or a combination of the two. Using some or all ETFs will enhance the diversification of your portfolio.
As 1 reasonable example, you can select 3 stocks from our stock report and 2 ETFs from our ETF report and allocate approximately $15k per position.
Alan
Alan,
Do you hold stocks and options over the election cycle? What about long term portfolios?
Do you consider them to be “earnings reports” and bow out of them? If you are out, what are you in?
-Phil
Phil,
In the past 2 presidential elections, I did significantly reduce my portfolio holdings prior to and a few days after the election result was finalized. I sold no options during that week.
Despite the fact that 2024 has (thus far) been a stellar year for the stock market and most economists refer to the US economy as the best in the post-COVID industrialized world, I plan to do the same this year.
I expect to reduce my holdings by 25% – 50% and sell no options that week.
This is a reflection of my personal risk tolerance and not a political statement.
Alan
Alan,
What is your take on daily options on QQQ or SPY?
Dan
Dan,
I prefer weekly or monthly expirations. These allow for mitigation and enhancement via exit strategy manipulation.
I consider 1-day expirations similar to day trading and that does not align with my personal risk-tolerance profile.
Of course, daily expirations may be appropriate for those willing to dedicate the additional time and incur additional risk in exchange for the potential of greater returns. One size does not fit all.
Alan
Good Afternoon Alan,
Would like to ask you if you have a video on finding
candidates for Covered Call Selling.
Regards,
Tony
Tony,
For stock screening, we use a 3-pronged approach to locate eligible option candidates: fundamental analysis, technical analysis and common-sense principles (minimum trading volume, avoiding earnings reports etc.).
For ETF screening, we require non-leveraged securities with relative strength (RS) ratings > 60 that have out-performed the S&P 500 in both 1-month and 3-month time frames. We also require these securities to have a minimum trading volume > 250,00 and open interest of 100 contracts or more and/or a bid-ask spread of $0.30 or less.
Here is a link to a related video for our reports:
https://youtu.be/hJI3dqsOdn4
Alan
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
Alan,
Is what you do to prepare for the day listed on the website? What I mean is what sites do you look at to get an idea what the market might do. In your opinion what is the best overall to look.
Dan
Dan,
To determine an overall market assessment, I use the following resources:
1. I look at the “Market Trend” published on the Investor’s Business Daily website:
http://www.investors.com. This is a paid subscription.
2. GMI Index from Dr. Eric Wish’s site:
http://www.wishingwealthblog.com
This is a free site.
3. I review all the major economic reports that were published that week from a multiplicity of resources.
I use these 3 resources to establish an overall BCI market tone assessment each week, which is published in our weekly stock reports.
You will find these appraisals under the “Market Tone” heading of the stock reports.
Alan