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Large Returns Can Be Enticing: We Must Do the Math to Make Sensible Trades + Free Webinar Registration Link + New Book & Calculator

Our and put-selling trades initially generate cash into our brokerage accounts. The amount of cash can be impressive on the surface but we must break down the components of these premiums, calculate our potential returns and measure the risk inherent in these contract obligations.

In November of 2021, Peter wrote me and inquired about a trade involving Intel Corp. (Nasdaq: INTC):

  • 11/1/2021: Buy 300 x INTC at $50.00
  • 11/1/2021: STO 3 x 6/17/2022 $30.00 calls for $6120.00
  • Does this trade make sense?

Based on the email I received, the attraction of the trade was the $6120.00 premium. Since the cash premium was based on 3 contracts, let’s simplify the returns to 1-contract percentages which will be the same for the 3 contracts.

 

Initial calculations using the multiple tab of the BCI Elite Calculator

 

INTC: Initial Calculations

  • The length of the trade is approximately 7 1/2 months
  • The annualized return is 2.1%
  • The time-value return if 1.3%
  • The downside protection of the 1.3% is a robust 40%
  • The breakeven price point is $29.60

 

Risk evaluation

A 7 1/2-month contract obligation will bring us through 2 more earnings reports which could negatively impact our overall trade position despite the huge downside protection. Is this the best place to invest $15,000.00 (300 shares at $50.00)?

 

My personal evaluation

Each investor must determine the strategy goals and amount of risk we are willing to incur. For me, annualized return of 2.1% while incurring the risk of 2 earnings reports eliminates this trade from my consideration. It may be appropriate for others.

 

Discussion

When evaluating potential option trades, the cash we generate from the sale of the contracts must be analyzed from calculation and risk perspectives. Large premiums that result in much smaller time-value returns and subject us to high-risk events can be deceiving and lead us to making inappropriate investments.

Strike selection is as much an art as it is a science. We must first establish our initial time-value return goal range. From there, we factor in personal risk-tolerance and overall market assessment. With these factors considered, strike selection will result in a well-thought-out plan.

 

Trade Management Calculator update (Manage trades start-to-finish)

We have completed beta-testing this new, one-of-a-kind tool. We have decided to include a new book I am finalizing to make this a complete package. I expect that the product package (Trade Management Calculator and book pdf.) will be available within a few weeks.

Click here for video overview

 

New book (coming this month)

for Covered call Writing & Selling Cash-Secured Puts

 

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:

Hello Alan,

I just wanted to share with you the great experiences I have had over the past year using the Show or Fill Rule.

Thanks for the tip.

Respectfully,

Marc

 

Upcoming events

1. Wealth365 Summit: Free Zoom presentation

Thursday April 7, 2022

11 AM – 12 PM ET

 

An Ultra-Low-Risk Approach to Selling Cash-Secured Puts

Entering and Managing 10- Trades

 Register here for free

Selling cash-secured puts is a low-risk strategy seeking

to generate cash-flow with capital preservation in mind. This

presentation will highlight an ultra-low-risk path to

using stats as a basis for the methodology. A new one-of-a-kind

trade management tool will also be introduced that will assist in

entering managing and receiving final trade results from start-to-

finish for both covered call writing and selling cash-secured puts.

Topics detailed in the course:

  • Option basics
  • Hypothetical and real-life traditional cash-secured put trades
  • Pros & cons of selling cash-secured puts
  • The 3-required skills for elite results
  • defined and implemented
  • Real-life monthly cash-secured put trade with 6 income streams
  • BCI Trade Management System (first-ever such tool)

Register for free here

 

2.Long Island Stock Investors Meetup Group

Stock Options: How to Use to Determine Strike Selection 

Creating 84% probability successful trades for covered call writing and selling cash-secured puts

Wednesday April 13, 2022

7:30 PM ET – 9:30 PM ET

Private webinar for this investment club

 

3. LIVE at The Money Show Las Vegas

May 10th – 11th

Click here for information

2 presentations:

Portfolio Overwriting (free)

Tuesday May 10th at 1:30 PM – 2:15 PM

Increasing Profits in Our Buy-And-Hold Portfolios Using Covered Call Writing

A Comprehensive Analysis of Covered Call Writing: 2-hour Masters Class (paid event to The Money Show)

Wednesday May 11th at 1:30 PM – 3:30 PM

How to master all aspects of this low-risk strategy

 

Alan speaking at a Money Show event

***********************************************************************************************************************

Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

****************************************************************************************************************

About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

10 Responses to “Large Returns Can Be Enticing: We Must Do the Math to Make Sensible Trades + Free Webinar Registration Link + New Book & Calculator”

  1. Barry B April 3, 2022 12:36 am #

    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 04/01/22.

    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:

    http://www.youtube.com/user/BlueCollarInvestor

    Best,

    Barry and The Blue Collar Investor Team
    [email protected]

  2. Joyce April 3, 2022 8:43 am #

    Alan,

    I have been trading options (buy and sell) for years and a new premium member to BCI. I am now focused on the sell side of options only and have one question (for now) about our reports…

    I see a column for ex dividend dates in these reports and wonder how I should manage these dates.

    Thanks for all your valuable information.

    Joyce

    • Alan Ellman April 4, 2022 5:59 am #

      Joyce,

      Welcome to our premium member community.

      Ex-dividend dates are the main reason for early exercise of our covered call options. Although extremely rare, if exercise must be avoided (for tax purposes, as an example), ex-dates must be factored in.

      If early exercise does occur, it will be the on the day prior to the ex-date.

      If early exercise is not a concern, ex-dates need not be factored into our trading decisions.

      It is also instructive to know that, on the ex-date, the price of the stock will decline by the dividend amount, and this is one of the parameters that will factor into the price of the underlying security on that day.

      Alan

  3. Alex Polanco April 3, 2022 10:19 am #

    Hi Alan, It is great you have a new book! I will buy it along with the Trade Management Calculator. Thanks so much for helping the BCI community. Have a great day.

    • Alan Ellman April 4, 2022 6:01 am #

      Alex,

      Much appreciated.

      Here is a link to a detailed video (40 minutes) that I produced yesterday showing all aspects of the upcoming Trade Management Calculator:

      https://youtu.be/KEjZK-krjc0

      Alan

  4. Alan Ellman April 6, 2022 4:52 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.

    New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.

    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

  5. Alan Ellman April 6, 2022 4:53 pm #

    Register for tomorrow’s webinar here:

    https://summit.wealth365.com/alan-ellman/

    Wealth365 Summit: Free Zoom presentation
    Thursday April 7, 2022
    11 AM – 12 PM ET

    An Ultra-Low-Risk Approach to Selling Cash-Secured Puts
    Entering and Managing 10-Delta Trades

    Register for free here: https://summit.wealth365.com/alan-ellman/

    Alan & The BCI team

  6. Roni April 8, 2022 10:07 am #

    Barry,

    On 04/01/22 I bought a protective put JBHT 04/14/2022 180.00 P to mitigate my loss.
    My question is : Will Schwab exercise it automatically if the put ends up ITM at expiration ?

    Roni

    • Barry B April 8, 2022 11:32 am #

      Hi Roni,

      I called Schwab just to make sure that I was correct…Schwab will automatically exercise your ITM put at expiration.

      However…personally, I always call Schwab anyway to make sure that there aren’t any glitches. As I always tell Alan, “I’m a belt and suspenders guy” when it comes to my trading account.

      Best,

      Barry

      • Roni April 8, 2022 3:45 pm #

        Thank you so much, Barry, for your prompt response and trouble calling them.
        I will do as you say.

        Have a nice weekend – Roni

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