Our covered call writing 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

 

• 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)

 

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:

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-Delta Trades

 Register here for free

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

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

presentation will highlight an ultra-low-risk path to option-selling

using Delta 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 option-selling results
• Delta 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 Implied Volatility 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 option-selling strategy

 

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

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