Earnings reports represent the greatest risk for price gap-downs for our covered call writing and put-selling stocks. Problem solved…we avoid earnings reports. However, from time-to-time unexpected negative news will be reported that will cause significant price decline. On July 25th, 2018, Earl shared with me a trade he initiated with Stamps.com (NASDAQ: STMP) and was subsequently impacted by such a negative news story.
Earl’s trade
- 6/18/2018: Buy STMP at $283.94
- 6/18/2018: Sell 6/22/2018 (Weekly) call at $4.80
- 6/22/2018: STMP closed at $252.65 after President Trump hinted at re-structuring the US Post Office
- 6/25/2018: Earl writes Alan expressing concern about selling at a loss needing guidance on managing these scenarios
1st step: Check the news
A reliable free resource for stock news is www.finviz.com:
What happened on June 22nd?
Shares of Stamps.com (NASDAQ: STMP) slumped on Thursday after the Trump administration proposed a federal government reorganization, including an overhaul and potential privatization of the U.S. Postal Service. The stock was down 10.2% when the market closed.
The next day
Maxim Group analyst Allen Klee defended Stamps.com Inc. STMP, which moved up +8.44% on Friday and said that the stock’s sizable selloff in the prior session was “an overreaction.” Stamps.com’s stock slid more than 10% Thursday after the Trump administration released a broad array of proposals, which included a plan to potentially privatize the post office. “We think it is unlikely that changes to the USPS would negatively impact Stamps.com and would use the pullback as a buying opportunity,” Klee wrote.
Technical analysis of STMP before and after the gap-down
Price Chart of STMP Showing Pre- and Post-Trade Results
- Yellow field: Bullish chart pattern leading into the trade initiation
- Purple field: Trump announcement resulting in price gap-down
- Brown field: Price recovery after initial emotional market reaction passes
- Green field: Price gradually declines prior to earnings announcement and then gaps-up after positive earnings surprise
Planning gap-down management
The BCI rule is to never sell an option with an upcoming earnings report. Our guidelines tell us that we can either avoid the stock through the report or retain it and write the call after the report passes. When unexpected negative news presents itself, we must check the news to investigate the reason(s) for the share decline. In this case, it appears the 10% decline was an over-reaction as share price immediately recovered. Had the news been more egregious like corporate fraud or FDA rejection of a key drug approval, then selling at a loss would have been most appropriate…take a loss to avoid taking an even greater loss.
General considerations
- If a stock price drops significantly by expiration, the original purchase price should not cloud our decision as how to proceed. If we paid $50.00 for a stock and at expiration it is $40.00, we now have $4000.00 cash invested in that stock (per contract) and we must decide if that $4000.00 should be in invested in the original security or a different one. In other words, which stock will give us the best chance to grow our wealth? This applies even if we paid $10.00 for the stock
- When a stock drops a significant amount, our exit strategy arsenal must be implemented, whenever possible. One of the reasons I prefer Monthlys over Weeklys is that we have more opportunities to mitigate losses and enhance gains. In this case, closing the short call after the gap-down and writing additional calls would have assisted in mitigating potential losses
- When a stock price drops 10% from one day to the next, we must check the news (www.finviz.com is a good, free resource). If egregious (like corporate fraud, a drug not getting FDA approval, a negative earnings pre-announcement etc.), we may look to cut our losses and move to a better-performer. Some set a percentage stock loss to sell (8% – 10% is a typical range used by investors)
- We must first close the short call, so limit orders can be set up after the initial trade is established (20%/10% guidelines)
- In this case, share price almost fully recovered so perhaps this story had a happy ending?
Discussion
Position management is one of the 3-required skills essential for maximizing our option-selling returns. This includes managing gap-downs resulting from unexpected negative news reports. Evaluating the news, not emotions, should guide us as to the next-step exit strategy trades to execute.
Put Calculator updated
Premium members:
We have enhanced the BCI Put Calculator in the “resources/downloads” section of your member site (scroll down to “P”) with the following additions:
- Added the 3% exit point (based on exit strategy found in Selling Cash Secured Puts).
- Added a comments section
Upcoming event
February 7th – 10th, 2019
Orlando Money Show
Omni Orlando Resort @ Champions Gate
February 7th – 10th 2019
Speaking schedule:
1. Getting Started with Stock Options: Creating Monthly Cash Flow with Covered Call Writing
February 8, 2019, 3:10 pm – 3:40 pm
2. Video Interview Q&A
3. Getting Started with Stock Options: How to Select the Best Options in Bull and Bear markets
February 9, 2019, 2:00 pm – 2:45 pm
Your generous testimonials (new feature)
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,
I must thank you for sending out the Sunday morning edition of BCI’s newsletter each week. I look forward to this new edition and view it as a serious item in my continuing education in option writing!
Jim W
Market tone
This week’s economic news of importance:
- Existing home sales Dec. 4.99 million (5.10 million expected)
- Weekly jobless claims 1/19 199,000 (218,000 expected)
- Markit manufacturing PMI Jan. Jan. 54.9 (53.8 last)
- Markit services PMI Jan. 54.2 (54.4 last)
- Leading economic indicators Dec. -0.1% (0.2% last)
***Other reports not available due to government shutdown.
THE WEEK AHEAD
Mon Jan. 28th
- Chicago national activity index Jan.
Tue Jan. 29th
- Advance trade in goods
- Case-Shiller house prices
- Consumer confidence index Jan.
Wed Jan. 30th
- ADP employment
- Gross domestic product Q4
- Pending home sales Dec.
- FOMC announcement
Thu Jan. 31st
- Weekly jobless claims 1/26
- Employment cost index Q4
- Personal income Dec.
- Consumer spending Dec.
- Chicago PMI
Fri Feb. 1st
- Nonfarm payrolls Jan.
- Unemployment rate Jan.
- Average hourly earnings Jan.
- Markit manufacturing PMI Jan.
- ISM manufacturing index Jan.
- Construction spending Dec.
- Consumer sentiment index Jan.
For the week, the S&P 500 moved down 0.22% for a year-to-date return of 6.30%
Summary
IBD: Market in confirmed uptrend
GMI: 3/6- Bearish signal since market close of November 13th, 2018 as of 1/17
BCI: I am favoring out-of-the-money strikes 3-to-2 compared to in-the-money strikes. Earnings season has been a positive and market volatility has subsided.
WHAT THE BROAD MARKET INDICATORS (S&P 500 AND VIX) ARE TELLING US
The 6-month charts point to an improving market tone. In the past six months, the S&P 500 down 6% while the VIX (17.42) moved up by 43%. We can’t forget that the VIX was more than double the current rating on December 24th (36.07).
Wishing you the best in investing,
Alan and the BCI team
Who among us that has been at this game any real period of time has not had an experience like Earl’s :)?
Actually, the way my psyche works if a stock has an out of the blue news hit it does not get under my skin if I am covered. I know I am better off than every other shareholder who isn’t! The ones that frustrate me are when a stock takes off out of the blue, I am covered and not as well off as other shareholders! Yet most of the time neither happens and we go along collecting premium and managing our positions.
Two other situations to keep in mind when we see drops in a stock without some big news event is to first see if it is the broader market or the sector impacting it before we make quick decisions.
If the market (SPY) is down 2% today, our stock has a Beta of 1.5 and is down 3% it is tracking as it should. No worries other than the health of the market itself, perhaps? Further, take a look at the sector ETF it is in. I hold BAC in the XLF and NVDA in the SMH. They could both be fine but if other banks or chip makers have a bad day it will bring down the whole sector no fault of my stocks.
So there is a 3 layer process I go through when I evaluate big drops: is it the stock, is it the sector, is it the broader market or some combination?
Similar exercise on the upside. When the market and/or the sector has a Gangbuster day I look to see if my holdings are participating equally. If not that is a possible warning flag about under performers if it becomes a pattern. – Jay
Excellent exposition, Professor!
Your second paragraph is dead on for covered call writing.
I normally do not buy back my short call on a stock that gaps up. There is a formula I use (BCI calculator now) based on the time value premium I received vs the time value premium I would have to pay to get it back. I would have to be really convinced that the news that made it gap up would drive it even higher. My experience is that most of the time you are better off being assigned if it’s late in the option period. If it’s early and I want to free up the cash I will buy to close and sell the underlying.Here again the analysis must show a greater return on a new position that what it costs me to close.
Conversely, on a long call that gaps up I usually sell if it’s mid to late in the option period. If I have multiple contracts then I take some, if not all the profits.This true for monthlys. On weeklies I sell, sell, sell.
On LEAPS in 2016 and 2017 I had tremendous success. In 2018 I got rear end handed to me. My largest loss was on FB which you may remember.$30,000.00 down in my position shortly after the market closed on 07/25/2018, “a day that will live in infamy”.
But I learned a lesson that I had missed somewhere along the way. Get out of a long call position when it is so far ITM that it begins to behave like as a stock and not as an option. Now I close out LEAPS that have gone deep ITM. I know that FB may have been an anomaly but as Mitch McConnell is prone to say, “There is no education to be had from the second kick of the mule”.
Finally, I am into my sixth week of eye surgeries and things are not going well. I must hold my laptop or phone very close to my face in order to read. I must really enlarge charts to be able to read them. Hope to have a better idea of my situation when I see the surgeons on 2/1. No pun intended. 🙂
On a brighter note had a very good week last week on a four day ATM call option on AMZN purchased Tuesday morning and sold Friday morning.+103%.
Hope things are going well for you in this schizophrenic market. I keep feeling like the trap door is going to be tripped at any time. I am at about 15% cash and will be adding to that this week.
May you have Fair Winds and Following Seas.
Hoyt
Thanks Hoyt!
All best wishes and hopeful thoughts on your eye surgeries. I can only imagine how scary that is even though the technology and treatments today are amazing.
Nice AMZN trade last week! I enjoy option buying speculation also with straight put/call buys, spreads and day trading. But to go back to my tired old pyramid model that is always with small amounts at the top of the pyramid for hobby enjoyment, mental challenge and hopefully a few bucks! Investing and options selling remain the base of my pyramid and I suspect yours too.
Have you been using LEAPS for stock replacement and appreciation, Poor Man’s Covered Calls (PMCC’s) or both? I have not dabbled there yet but have been meaning to educate myself on LEAPS. I have Alan and Barry’s latest book.
I have found in call buying for near term speculation that if the delta goes to 1.0 and the option becomes the stock at a far lower price I take the gains and if I still like the idea roll the bought option back down towards the .5 delta for a new batch to lower the risk and start again. Not sure how well that would work using LEAPS for speculation since I assume one buys those at a high delta to start with? But I am going to test that!
“Schizophrenic” is a good word for the market :)! I have a higher cash position than yours and am comfortable with it for now. There is so much uncertainty and risk in the news. Yet isn’t that always the case? Perhaps we should just beat on as boats against the current fully invested flexing our sold strikes :)?
I am not a “Wall” fan. May have worked in Ancient China and Cold War Berlin. But there are far smarter more economical ways to do that now. Not sure the Fed gets the global slow down yet. Trade worries have been a favorite fire to flame for some. And politics are always a cloud on the horizon. It’s funny how the Bears always sound like the smartest guys in the room at cocktail parties. But how often does all that doom and gloom really make them money unless they time it perfectly?
So on we go. Hope everyone has a successful week. – Jay
Hi Jay,
I have used LEAPS mainly for stock replacement. I am not sure I really get PMCC as I had a difficult time trying to find a strike where the time value of the short call was greater than or equal to the time value of the long call. After spending a lot of time I gave up on the concept.
I buy LEAPS that have a delta of around 0.5 and that cost 8-10% of the stock price. That gives me about 5 times the appreciation on money invested vs buying the stock. Because the LEAPS go out 1 1/2 to 2 years time decay is minimal for the first 1 to 1 1/2 years. Usually, in a bull market, it approaches a delta of close to 1.0. That still is a better ROI than buying the stock if the stock continues to go up but flat or down action ROI is worse. This assumes my thinking is correct. 🙂
Actually the wall didn’t work for the Chinese. The trading posts reduced attacks more that the wall did. It is now a real money maker because of tourism. This might happen with Trump’s Wall too. 🙂 He will probably set it up with his name and photos and have a clause where he gets a cut of the fees charged to tourists as well as a cut on the parking fees.:)
The Berlin Wall, which I “visited” was built to keep people in as no one wanted to live there or visit unless for clandestine purposes.:)
As for Bears, most are/were bears in retrospect. Most that I know do not exit the market until it has gone way down. Those who get out then usually wait until the top of the next bull market before they get back in. They have a myriad of reasons not to get back in. Most who claim to have gotten out before the bear market came usually provide no evidence that they did so.
It is my belief that a person of average intelligence, me, who immerses themselves in market education and uses multiple tools, CCs, Calls, Puts, etc., with an online discount broker can outperform a broker managed account where 1-1 1/2 % is taken off the top. Using BCI’s legwork in finding CC candidates saves a lot of time and is most likely more accurate. I use stocks on the Watchlist to sell CCs and buy calls. I also buy calls on stocks not on the list. Some of those, on and off the Watchlist, over time have been CRM, PANW, BAC, AMZN, MSFT, SQ among others and of course, to my detriment , FB. 🙂
BCI is the only subscription service I use. I really don’t believe anyone at any skill level needs more than BCI. You can take what you learn there, skills and screen results, and work with most products. Obviously it’s much easier to amass wealth if your account is tax qualified.
Take care, friend
Hoyt
Hi Jay,
Oh by the way, how did the Maginot line work for the French?
Also the Dutch had a wall in New Amsterdam which the English sailed around to take city now known as New York. 🙂
That’s where Wall Street got it’s name.
Hoyt
Good morning Hoyt,
Thank you for your great replies! As for the Maginot Line didn’t the Germans just go around it :)?
For grins this morning on the dip I bought $2k each of Jan ’20 call LEAPS on BAC, DIS and CSCO at the .5 delta. Why those three? Just high liquidity tickers in different sectors for a limited risk experiment. I could have picked a dozen others.
I am interested in seeing how LEAPS work as a lower cost stock replacement strategy. I will not be shy about taking profits as the delta increases and then buying back lower should that be the case. Happy sell off Monday! – Jay
Jay,
Don’t know if this will get in the right sequence or not. Didn’t have a “reply” button on your last response.
Looks like three good picks to me. I particularly like DIS and CSCO. I own both BAC and CSCO having acquired them in the great recession. Have traded calls on BAC (weekly, monthly and LEAPS) and made money overall. Never really had much opportunity to trade on CSCO. Both were essentially dead money until November of 2016. BAC has had issues around $30.
I own some DIS $110 calls expiring Feb 01 ’19. Underwater at this point. Earnings due 02/05/19. I bought expecting run up prior to earnings. Looks like is not going to happen as DIS has been selling off for the last two weeks. I still believe there will be an earnings upside surprise but I don’t think the market thinks so.
Livermore, I think, once said, “Don’t fight the tape”. Somebody else once, or twice and on and on, said “The market can remain irrational longer than you can remain solvent”.
I bought TLT April expiration $121 Calls this morning. Don’t ordinarily mess with Treasuries ETFs but did it on a flyer. I am up 1 1/2 % today. It’s up 8.19% today (option).
Days like today are good days to pick up bargains; until they are not.:)
Good Luck,
Hoyt
Thanks Hoyt,
Your kind comments fell into the right sequence and I hope everyone else does not think we are stage hogs here :)?
Nice move on TLT. I have some and have just been over writing it. That and GLD are like watching grass grow but they are good income ETF’s for cc’s. – Jay
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 01/25/19.
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
[email protected]
Fellow Blue Collar Investors,
The current issue of IBD (week of 01/28/19) has the seventh annual review of online brokers. They measured fourteen different categories and the top three brokers are:
– Schwab, #1
– Fidelity, #2
– Interactive Brokers, #3
The other finalists were:
– TD Ameritrade
– E-Trade
– Trade Station
Best,
Barry
Alan and Barry,
I am unable to access the weekly stck screen.
Please fix my account.
Roni
Roni,
I passed your issue to our web team. In the meantime, I sent a copy of the current report to your email.
Best,
Barry
Thanks Barry,
they fixed it, I’m back in the game.
Roni
WOW !!!! you guys are fast…
Hi Allan,
I started employing the covered call strategy you teach in the 2nd quarter of last year. I have already realized some nice returns by employing the strategy. I finished 2018 at 4.6% on my main IRA. I thought that was decent compared to S&P being down 6-7%.
During the last turn-down (Oct-Jan), I turned to Put selling (cash secured). I chose stocks that are fundamentally sound and (aside from the turn-down period), are technically appealing. In other words, stocks that will likely return to upward trend when the overall (temporary) market-down period gives in to better conditions. The downward direction makes the Puts trade a little richer and I chose strikes that I am willing to own the stock at should I get exercised. That worked well.
Now that volatility has subsided and the earnings are coming in good, it seems the bull run might continue into 2019. So, I’m ready to load up again on some good stocks and sell covered calls. But my put-selling experience made me wonder if I should start by selling a put instead of just buying the stock. If I want the stock at the current price, why not sell ATM put? If I get exercised, that’s fine. I wanted the stock at that price anyway. Then I could turn right around and sell a call. If the stock takes off and I don’t get exercised, well I missed the boat but I still get the proceeds from the put contract.
Thanks for all you do for all of us do-it-your-selfers!
Greg
Greg,
First, congratulations on your success in the very challenging 2018 we all faced. The PCP strategy is perfect for such market scenarios.
In neutral and bull markets, I prefer covered call writing w/o the put component although PCP works well there as well. The reason is that we can take advantage of share appreciation rather then settle for put premium only when selling out-of-the-money call options.
Let’s say we sell a put and the option expires worthless…we do well but could have done better with covered call writing (OTM strike). If our assessment is for a bull market as your question suggests, why not take advantage of the opportunity for share appreciation up to the strike price?
Once again, both are great cash-generating strategies. Let me add one caveat: If PCP fits our risk-tolerance and helps us sleep better at night…let’s roll with PCP.
Continued success,
Alan
Read your article.
After a option is created,
Can a stock broker adjust the option strike price during the life of the option or at expiration.
The answer is no.
It would be unethical, illegal and against SEC rules and regulations.
Can you respond to this.
Sincerely,
Mark
Mark,
You are correct in that stock brokers cannot make changes in strike prices but the Options Clearing Corporation can and should in certain specific situations.
These scenarios include stock splits, mergers and acquisitions, spinoffs and special 1-time cash dividends. The reason for changes in strike price is to make buyers and sellers of calls and puts “whole” after these corporate actions.
Let me give you an example. Let’s say we buy a $50.00 call for a stock trading at $50.00. Prior to contract expiration, the stock splits 2-for-1 resulting in a share price of $25.00. Now the holder of the $50.00 call would suffer if the OCC didn’t change the strike to $25.00. Nobody gains or loses from these changes.
Alan
To tell a story on myself I am a true believer in Alan’s #1 rule that we don’t cover stocks over earnings reports. Holding them is fine, just don’t over write them.
And it helps if you pay attention :)! I have done well with my PYPL shares I got some time back from the assignment of a CSP and had been doing CC’s on it intermittently at the high end of the OTM range to give it room. How’s that for a string of abbreviations :)?
Fortunately my platform flags earnings reports on my holding page and I saw the “E” box next to PYPL which reports after the close today. I bought back my CC and will see how it does later.
I should have checked that before I sold the original call, I was lucky to have exited with a small option gain as options prices tend to rise into earnings reports. So I now hope PYPL has a blow out earnings report like APPL just did! – Jay
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 recent strengthening of the market is reflected in the increase in the number of eligible candidates.
New members check out the video user guide located above the recent reports.
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
Hoyt,
Thanks for sharing about your vision issues, share your concerns, and wish you well. I myself have VA (visual Acuity) and Scarred Cornea issues. Maybe this info will help others, as eye issues are complex in digging down on your actual problems and causes. Myself, an electrical engineer, know how at times it can be difficult on finding the actual cause of a problem and diagnosing the next best step solution.
Had cataracts replaced 3 years ago, results not fine. Cornea specialist took a wait and see attitude. Not very happy for 2 years. I am lucky the my brother an Optometrist in Portland, Oregon, who is sharp and has all the digital equipment, suggested to me next time to TELL my optometrist to check for a PCO cloudy membrane condition with the Slit lamp exam (needs to look at special angle to see that membrane), The membrane holds the new lens inserted with cataract surgery. Lo and behold, he definitely found something. 3 months later I had a YAG Capsulotomy (Laser) with my Opthamologist to burn a donut hole in my 2 membranes. Improved my vision (I can see a whole page clearer) immediately 5 minutes later. Excellent videos on the Internet describing these issues.
20% of Cataract patients develop and have this problem, but not an obvious diagnosis in my case, if you have multiple problems in your eye. Seems like you have to keep persevering to get results.
I now have changed to a new Health plan so I could go Bascom Palmer Eye Hospital in Miami / Plantation, FL (#1 in nation) for my remaining cornea issues. Very pleased at this time but not completely out of the woods.
Mario
Hi Mario,
Thanks for your kind remarks and interest.
I, too, have cornea issues in my left eye. I am familiar with the condition you described with a cloudy membrane holing the implanted lens.My cousin had that issue and had several perforations with the YAG laser. Her surgeons called that “secondary cataracts”.
My replacement lens were the ReSTOR TORIC IOL Left eye was done 12/18/18. Right eye 01/15/19.
Right seems ok except for up close. Left fuzzy at all distances with a hole (absence of anything) in dead center. Had atypical swelling in this eye with Glaucoma like pressure. I have to hold anything I read very close to my face. No level of strength of reading glasses solve this problem.
I go tomorrow for a review Will know more then, hopefully.
On a different note, I didn’t see the market rebound yesterday coming. Sold some long calls on Tuesday that had 2/1 expirations and I didn’t see them moving into profitability. Boy was I wrong about that. My financials trending down, I believe, on the Fed’s seemingly confirming no rate increases for the near future.
Oh, BTW, is pot the new bitcoin? Will it go up in smoke?:) Or is it for real?
Take care,
Hoyt
Hoyt,
Will reply on next weeks blog…. on my holdings and other…
But for now, highly recommend you ask to get complete printed office report on for each visit and past regarding your procedure.
Bascom Palmer Eye Hospital charges for a printed report (I was initially told) but, boy, I am glad (before I paid a penny) I asked lots of questions because it took me (just by chance) a long time to find out I could get a PDF transferred from records to my online chart for free! The office staff at the doctor’s did not know that. My other doctors I could get printed for free. Please reply if you see this before next week.
Each visit, when tested, should also list the VA (visual acuity) for each eye with and without correction. Optometrists /Opthamologists do not like to give that out with Eyeglass Prescriptions or mention it to you during an exam but it means a lot to other doctors and for you to see your status. The reports should state that with other data. I also have a Snellen chart on a wall (20ft. test) for me to evaluate as well.
Mario
Mario,
Got it. Will do.
Thanks,
Hoyt
All the best, Hoyt. I am pretty sure Mario is in Florida, Roni is in South America. I am in New Orleans – don’t get me started on the NFC Title game – but not sure where you are in our little “Four Amigos” group :)? In any case I hope this challenging winter has not been a burden for you. – Jay
Jay,
you are young. Take good care of your eyes.
Check the pressure once every year.
Have a nice weekend.
Roni
Mario and Hoyt,
I am in the same club.
Several issues with eyesight.
First many years ago : trobosys in left eye. Focal point is half blind.
Some more years : Glaucoma, both eyes. Right eye lost upper half of field.
Another five years : Cataract surgery both eyes, fortunately without any issues, no more Myopia ( I had aprox. 5 degrees since childhood).
Situation today : Left eye helps with field, right eye has acuity. Vision pretty good for far, but need several spectacles for computer and for reading the papers and books.
Therefore, I have a 32″ TV for computer screen, and use Kindle for reading books, where I can adjust the letter sizes to enlarge.
Not the best, but also not the worst.
Cheers – Roni
Mario, Roni, Jay,
I live northeast of Atlanta, across from the Mall of GA. One of my sons and I live in a valley of 144 acres. No street lights and plenty of wildlife, deer, etc. My other son lives about 10 mile away at Chateau Elan in Braselton, GA.
Went to eye doctor today. Had a lively discussion. Long story short I have to see a retina specialist. Left eye may not get any better. Right eye will probably get better.
Mario, I will pick up my report next week after he has had time to write up today’s visit. I think he thought I was preparing a lawsuit after our “lively”discussion. Thanks again for your excellent suggestion.
On another subject, after returning home I followed AMZN for awhile. Having thought it had bottomed out I bought $1650 Feb 15 calls. One half hour later at $20.00 lower I bought $1630 Feb 15 calls.:)
As we say down South, Y’all have a great weekend. Keep up the good work.
Hoyt
Thanks Roni,
A long time ago I was a pilot in the US Military and still have great unaided vision. I am very lucky in that regard. If only my market vision was as good :)? – -Jay
dear sir
i bought two of allan ellman’s great books
i would like to know if i see in the money covered calls, can i get decent and good downside protection as well ?
please can you give an example of how much premium and downside protection i can get ?
thanks,
Thomas
Thomas,
The amount of downside protection we get depends on how deep-in-the-money the strike is. If a stock is trading at $54.00, the $52.50 strike will give less downside protection than the $50.00 strike buy will offer greater time value profit. That’s the tradeoff.
Let’s say we buy a stock for $32.00 and sell the $30.00 call for $3.00. The downside protection (of the time value profit) is $2.00/$32.00 = 6.25%. The initial time value profit is $1.00/$30.00 = 3.3%. The breakeven is $32.00 – $3.00 = $29.00. Use the multiple tab of the Ellman Calculator to generate these results.
Alan
Hi Alan,
I have a question about the attached Exit Strategy Matrix. It states “use multiple strategies” to mitigate losses on or near expiration Friday (point 4).
1) How do you use multiple strategies when there isn’t much time left in the current contract cycle? Can you please explain this with some practical examples?
2) Can you also point me to the relevant sections of both the Encyclopaedias on this?
As always, thank you.
Duminda
Duminda,
Using multiple strategies occurs over the course of a contract, not only at the very end. We may “hit a double” and then roll out and up. Or, we may roll down twice. These are just 2 examples.
See pages 293 – 295 in the classic edition of The Complete Encyclopedia…” for more details.
Alan