The exchange-traded fund (ETF) that has appeared most frequently in our premium member ETF reports is Invesco QQQ Trust (NASDAQ: QQQ). This fund consists of 100 of the largest non-financial companies (predominantly technology companies) that trade on the NASDAQ exchange. As of June 2019, the top 3 holdings in QQQ are Microsoft (MSFT), Amazon (AMZN) and Apple (AAPL). Although these are blue chip companies, since they are mainly technology-based, there is some decent implied volatility and therefore option premium attached to them. This article will highlight some of the 1-month initial time value returns possible using QQQ as of June 5, 2019. We will first focus in on covered call writing and then put-selling.
QQQ: 1-month call option chain
QQQ Call Options as of June 5, 2019
The brown cell show 3 out-of-the-money (OTM) strike prices and their corresponding “bid” prices.
QQQ: 1-month calculations using the Ellman Calculator
Initial 1-month time-value returns run from 1.9% to 2.2% and up to 2.7% with upside potential.
QQQ: 1-month put option chain
QQQ Put Options as of June 5, 2019
We will calculate the 3 strikes in the lower part of the screenshot. The $170.00 strike at the top represents a possible consideration for a protective put which is outside the scope of this article.
QQQ: 1-month calculations using the BCI Put Calculator
The percentiles circled in red represent 1-month initial time-value returns on selling these OTM cash-secured puts.
Discussion
Generating cash flow on technology-based stocks can be accomplished in a conservative yet powerful manner by selling call and put options against the Qs. Annualized initial time-value returns can easily exceed 20% or even higher when managed properly in normal to bull-market conditions.
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:
Alan,
We will always need you and Barry. Yet I suspect I speak for many in thanking you guys for helping me stand on my own two feet!
Jay
***Jay is a valuable contributor to our weekly blog commentary.
Upcoming events
November 2, 2019 @ 3 PM ET
Money Answers Radio Show:
I have accepted an invitation to be interviewed on this program on Monday December 2nd at 3 PM ET – 4 PM ET. I’ll provide more information as I receive it.
February 6th – 9th 2020 Orlando Money Show
3- Hour Masters Class Saturday February 8th 1:45 – 4:45 PM
BOOTH 306
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Market tone data is now located on page 1 of our premium member stock reports.
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Dear Alan and Barry,
Reading the new blog is a staple of my Saturday morning web browsing and I enjoy reading comments through the week. Thank you guys again for all you do and for your kind mention above.
I can’t recall a time in recent years when I did not have shares of the Q’s in my portfolio. And often I’ll have open cc’s on some and/or open csp’s to acquire more.
As you point out it is the NASDAQ and not all tech. Last time I looked PEP (Pepsi) was a top holding. But it’s mostly Tech and that’s how folks regard it. If one wants a pure Tech play use the SPDR XLK. You do lose AMZN coverage in that one as the SPDR’s have it over in the XLY. The SPDR’s are liquid enough for our purposes but spreads are wider.
This morning at the tail end of our last blog Terry posted a great seasonality chart. Every one please go back and check that out if you have not seen it. I hope we finish the year consistent with historical trend!
A successful and happy Thanksgiving week to all! – Jay
Alan,
When reading the BCI Long Term Investing Flow Chart it says, “Continue To Manage Account With Stop-Loss Order.” Can you please give me more specifics on this strategy?
Thanks,
Herman
Hi Herman,
There are a few things working here:
– The stop-loss order refers to placing a stop-loss/contingent order to buy back your option when it hits the 20% point per the BCI rules during the first two weeks of a 4 week option month or during the first 3 weeks during a 5 week option month.
– Similarly, with the 10% buy-back rule in the second portion of the option month.
– The last item is that you need to be ready to exit the stock if it turns against you. While there are a number of exit rules, we like to follow the IBD rule to exit the stock when it drops 7% – 8% from your purchase price.
There are a number of Blog articles covering these topics for further information. I hope this helps, if not, please get back to me.
Best,
Barry
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 11/22/19.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
http://www.youtube.com/user/BlueCollarInvestor
Since we are in Earnings Season, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:
https://www.thebluecollarinvestor.com/constructing-your-covered-call-portfolio-during-earnings-season/
Best,
Barry and The Blue Collar Investor Team
barry@thebluecollarinvestor.com
Hi Alan,
I wanted to tell you that after reading your books and watching the videos for the last month I think that I am able to do the BCI strategy myself without any help.
I read your books several times because there are a lot of little details that you don’t catch from the first read. So I just read the books as several times. You said to paper trade for a few months but this stuff looks good so I started trading with real money and so far so good.
I bought QQQ and I am planing to never sell it and just keep selling covered calls every month. With the indexes like SPY and QQQ I don’t worry because they always recover
if they go down in price and in the long run they go up and covered calls just enhance the return… That’s Awesome!!!
With individual stocks I’m just buying a few with just one option contract each until I have enough practice and feel confident and then I with increase he size of the bets with individual stocks.
I subscribed to the Investors business daily, they have this try it for 2 months for $20 and I was watching the IBD 50 list as you say in your books.
I bought BOOT and did OK with the covered call,
on expiring Friday the call was in the money. I decided to buy back the option and then sell the stock because with my broker here in Canada the fees are $4.95 to buy sell the stock and the options are $10.96 but if the option gets assigned its $24.95 so if I don’t want to keep the stock I just buy the option and sell the stock Ha ha…
Ive done research to find good optionable stocks and I think that now I need some help to find them. Besides the IBD I went to Finviz and used your stock screen suggestions but the results for the stock options were not impressive.
I was thinking of subscribing to your Premium membership on December or January.
Thank you.
Julio
Julio,
Glad to learn of your recent success. A few comments:
1. The broker commissions are too high. Check out our “Free Resources” link which contains a file of online brokers with much lower fees and accept international members trading on US exchanges:
https://www.thebluecollarinvestor.com/free-resources/
2. You will not need an IBD subscription if you subscribe to our premium membership. My team will do the entire screening process for you.
3. QQQ has been the ETF most often found in our ETF Reports but it is not always out-performing the overall market so let’s give it strong consideration but also leave the door open to selling it when there are better underlying candidates.
Alan
Hi Alan,
Thanks for the information.
I have one contract with QQQ and was going to open a second contract but on your recent ETF report XBI is doing good and the
option returns are better than the QQQ.
I can but 2 contracts for XBI will a less money than one contract for QQQ
and the return is almost twice as much for a one month option.
I decided to leave the one QQQ contract as it is and instead of a second contract I will buy two with XBI more money!!!
On the ETF summary you specify if they have weekly options,
that’s for persons that would do weekly options but do you
prefer and advise more as it says on your books that the one
month options are better? Less commissions etc.
I read Marios
Analyzing 4-Day and 2-Month Trades with XBI
Thanks
Julio
Julio,
Here are a few points to consider regarding your inquiries:
1. A security that generates higher returns has higher implied volatility. We must be sure that meets our trading goals and personal risk-tolerance. For me, it’s 2% – 4% per month in normal market conditions for initial time-value profit.
2. I believe impressive returns can be generated with both Weeklys and Monthlys. My preference is Monthlys. Better liquidity and more opportunities for exit strategies are 2 of the reasons.
3. Commissions are less of a reason to favor Monthlys now that most online discount brokers have moved to $0 commissions for stocks and ETFs.
Alan
Hi Alan,
I am Anil from New Delhi, India. I am a chartered accountant by profession & I also run a stock market training institute. I have read many articles of yours & also seen your very informative videos on covered call writing. Thank you so much for sharing such valuable knowledge.
I have a few queries which I have listed below. Shall be thankful if you could pls. provide solution
1. I wish to buy the books authored by you from amazon for training my students. Can I distribute the original copies of those books to my students? Can I use the bought books for commercial purpose of teaching?
2. How many books have you authored & how many are available for sale on amazon?
3. Apart from books, do you have any other research paper / informative book / article which you can share?
4. I had a link to your couple of video series on covered call writing but I seemed to have lost the same. Can you please share link to your valuable videos?
5. Last & most important – I have been searching & researching on various strategies in futures & options to generate repeatable monthly income with a high degree of certainty. There are various strategies involving spreads, condors, collars etc. but the best strategy to generate monthly income with highest degree of certainty is ‘covered call writing (with married put)’. Just wanted to confirm whether in the world of futures & options, it there anything better than ‘covered call writing’ or is ‘covered call writing’ is the ultimate solution for a person looking for monthly income with certainty? Is there anything beyond & better than ‘covered call writing’ for generating monthly income with certainty?
Many, many thanks & with high regards
Anil
Anil,
We are so pleased to share information with our international members.
My responses:
1. I wish to buy the books authored by you from amazon for training my students. Can I distribute the original copies of those books to my students? Can I use the bought books for commercial purpose of teaching?
Yes, I’m all about teaching.
2. How many books have you authored & how many are available for sale on amazon?
7 books:
https://www.amazon.com/s?i=stripbooks&rh=p_27%3Aalan+ellman&s=relevanceexprank&Adv-Srch-Books-Submit.x=37&Adv-Srch-Books-Submit.y=7&unfiltered=1&ref=sr_adv_b
Also available here:
https://thebluecollarinvestor.com/minimembership/bci-physical-shop/
3. Apart from books, do you have any other research paper / informative book / article which you can share?
Huge number of related blog articles:
https://www.thebluecollarinvestor.com/blog/
Also, a big educational component associated with our premium membership:
https://www.thebluecollarinvestor.com/membership/
4. I had a link to your couple of video series on covered call writing but I seemed to have lost the same. Can you please share link to your valuable videos?
This is the link to our beginner’s tutorial:
https://www.thebluecollarinvestor.com/beginners-corner/
5. Last & most important – I have been searching & researching on various strategies in futures & options to generate repeatable monthly income with a high degree of certainty. There are various strategies involving spreads, condors, collars etc. but the best strategy to generate monthly income with highest degree of certainty is ‘covered call writing (with married put)’. Just wanted to confirm whether in the world of futures & options, it there anything better than ‘covered call writing’ or is ‘covered call writing’ is the ultimate solution for a person looking for monthly income with certainty? Is there anything beyond & better than ‘covered call writing’ for generating monthly income with certainty?
This is an opinion question so the answer depends on trading style, goals and personal risk-tolerance. For me, covered call writing has generated the highest returns in a low-risk manner. Selling cash-secured puts is extremely useful in bear and volatile market conditions.
I want to address the word “certainty” First, these strategies are low-risk, not no-risk. We must master the 3-required skills (stock selection, option selection and position management) to mitigate these low-level risks. The (close to) “certainty” is that if the 3-required skills are mastered, we will beat the market on a consistent basis. When the market is down substantially, as it was in 2008, we can lose money and still beat the market. As an example, my portfolio was down 15% that year while the S&P 500 was down 37%. Although that year was an aberration, I want to point out that beating the market consistently is a reasonable expectation. Making money every year with rare exceptions is also reasonable.
Please keep in touch.
Alan
Article is great! However, you might want to change the expiration date in the middle option Strike: $174.50. The expiration date is 07/05/2029 at that date you should get a WHOLE lot of premium 🙂
Lawrence,
Good catch. Thanks a lot.
Alan
Premium members,
We have updated the “Ask Alan Video Topics” file in the “Resources/Downloads” section of the member site (right side).
The file includes titles of all videos currently available (164 videos) plus the video topics that will be published through
March 2020 (Ask Alan 168).
I hope you enjoy and benefit from these educational products.
Alan
Alan,
I know you’re busy but why do you send two reports where the stock screen appears to be the same each month?
Thanks,
Gary
Gary,
The first report is in a traditional font. The second is published in a larger font for our members who are visually challenged.
Alan
Alan,
Is there a recommended procedure to start deciding which stocks to analyze from the Weekly Stock Screen and Watch list.
Checking each one seems daunting and would take too much time.
I choose several almost arbitrarily to begin my process.I’d like to include more.
Thank you.
Joseph (premium member)
Joseph,
All stocks in the “white cells” of our stocks reports are eligible for option-selling as long as there is adequate option liquidity (see the “OI column”). The information in our reports allow our members to populate their portfolios based on their trading style and goals. As an example, we have some members who favor stocks which dividends generate. That’s why our reports include dividend yield and ex-dates.
Price-per-share is also discerning parameter that may eliminate some of the choices.
One of the most popular approaches to our stocks reports is to focus in on stocks in bold (best technicals) with industry segment ranks of “A” or “B”
Alan
Premium members:
This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates.
Also included is the mid-week market tone at the end of the report.
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
Happy Thanksgiving to you and your families,
Alan and the BCI team
Alan’s live radio show interview:
https://moneyanswers.com/money-podcast/why-covered-call-options-may-be-your-best-investing-strategy/
Monday December 2nd
3 PM – 4 PM ET
12 PM PT
BLACK FRIDAY DISCOUNT VIDEO:
https://youtu.be/nUKP_8WF2f8
Use discount promo code shown in the video for these Complete Encyclopedia editions:
Softcover:
https://www.thebluecollarinvestor.com/alan-ellmans-complete-encyclopedia-for-covered-call-writing-scover/
https://www.thebluecollarinvestor.com/alan-ellmans-complete-encyclopedia-for-covered-call-writing-volume-2/
Hardcover:
https://www.thebluecollarinvestor.com/alan-ellmans-complete-encyclopedia-for-covered-call-writing-hcover/
https://www.thebluecollarinvestor.com/alan-ellmans-complete-encyclopedia-for-covered-call-writing-hcover-volume-2/
Happy holidays to one and all,
Alan and the BCI tream