Comments on: Option Prices: The Role Of Interest Rates And Dividends https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/ Learn how to invest by selling stock options. Wed, 31 Dec 2014 22:50:24 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21787 Wed, 31 Dec 2014 22:50:24 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21787 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.

For your convenience, here is the link to login to the premium site:

http://www.thebluecollarinvestor.com/member/login.php

NOT A PREMIUM MEMBER? Check out this link:

http://www.thebluecollarinvestor.com/membership.shtml

Wishing all our members a happy, healthy and prosperous 2015.

Alan and the BCI team

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21781 Tue, 30 Dec 2014 19:23:15 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21781 In reply to Larry.

Larry,

There are two excellent ways of managing this issue:

1- If you are selling multiple contracts, split them as to strikes used: If 4 contracts, 2 ITM and 2 OTM.

2- Favor OTM strikes for securities with the strongest technicals and ITM strikes for those mixed or slightly weaker technicals…getting that “insurance policy” for the technically weaker (but still great cc writing candidates) stocks.

Alan

]]>
By: Larry https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21780 Tue, 30 Dec 2014 19:19:35 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21780 Hi Alan,

Of late, you have suggested half covered calls with strikes ITM and half with strikes OTM. After identifying your candidates of strong, high quality stocks, are there any specific steps you take in determining which securities you select to write ITM strikes vs OTM strikes ?

Larry

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21779 Tue, 30 Dec 2014 16:37:51 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21779 In reply to Guy.

Guy,

Before I respond I want to emphasize that any tax decision you make should be after consultation with your broker and tax advisor and not by anything I have to say in this response.

Since the IRS started asking for accurate cost basis and options reporting information about 2 years ago, tax advisors have been faced with a dilemma as to how to report. My understanding after speaking with several CPAs is that most reliable brokerages are reporting accurately. Many tax advisors simply attach the brokerage statement to the Schedule D or Form 8949. When filing electronically, there is another form that may be used (Form 8453).

If possible, trade in a sheltered account. If not, a good tax advisor should be able to manage the changing tax environment.

Alan

]]>
By: Guy https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21778 Tue, 30 Dec 2014 16:31:07 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21778 Alan,

What is the best way to keep accurate records to prepare IRS form 8949?

Guy

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21777 Tue, 30 Dec 2014 12:58:18 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21777 Open interest:

We’ve had a few inquiries regarding the significance of open interest for options and why we include a column in our premium stock reports showing if OI for near-the-money strikes is adequate according to the BCI methodology (> 100 contracts or a bid-ask spread of $0.30 or less). The reason is that poor option liquidity (OI) usually results in unfavorable trade execution pricing because of the wider bid-ask spreads. As an example, RYAAY has passed the BCI screens but does not have adequate OI AT THIS TIME. In the screenshot below, we can see the wide b-a spread for the near-the-money $70 strike with the stock trading at $70.62.

CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO THIS BLOG:

]]>
By: Alan Ellman https://www.thebluecollarinvestor.com/option-prices-the-role-of-interest-rates-and-dividends/#comment-21773 Sun, 28 Dec 2014 22:00:43 +0000 http://www.thebluecollarinvestor.com/?p=10270#comment-21773 In reply to Joe.

Hi Joe,

If you take no action, shares will be sold if the closing price is $0.01 or more above the strike at expiration. Final resolution of closing prices may actually be calculated a few minutes after 4PM ET as later orders are processed so to avoid exercise, if the price is very close to the strike near 4PM, buy back the option:

1- Shares are sold at the strike price.

2- Shares may be sold at the strike price…no definitive answer for this one.

3- Shares are not sold, option expires worthless…we keep option premium and still own the shares.

Alan

]]>