beginners corner

Options That Expire Weekly and Conventional Expiration Cycles

There’s a new man in town! A relatively new options product is now available called the Weekly Options Series or Weeklys. These weekly expiration options are listed on a Thursday and expire the following Friday. The exception is that weeklys are not traded the week of expiration Friday and therefore do not list new weeklys on the second Thursday of the month. The next new weekly series is listed on the Thursday immediately prior to expiration Friday. An investor needs to carefully examine the option symbols which will display the precise expiration date of an option and that will identify the option as a weekly. It is yet to be determined if these new products will have a place in our world of covered call writing. My initial thoughts are that it would NOT have a place in this strategy because of the inability to institute exit strategies to mitigate losing positions. Also the number of underlying securities that have weeklys is quite limited. However, the BCI team will continue to monitor these and other derivatives to evaluate any potential for profit-generating opportunities. As of September 2010, here is a list of the available weeklys for stocks and ETFs:

Ticker Symbol Name Product Type
OEX S&P 100 Index (American style) Index
XEO S&P 100 Index European-style Index
DJX Dow Jones Industrial Average Index
SPX S&P 500 Index Index
NDX NASDAQ 100 Index Index
EEM iShares MSCI Emerging Mkt Index ETF
FAS Direxion Daily Fin’l Bull 3X Shares ETF
FAZ Direxion Daily Fin’l Bear 3X Shares ETF
GLD ishares SPDR Gold Trust ETF
GDX Market Vectors Gold Miner ETF ETF
IWM iShares Russell 2000 Index Fund ETF
QQQQ Nasdaq-100 Index Tracking Stock ETF
SPY S&P 500 Depositary Receipts ETF
USO United States Oil Fund ETF
XLF Financial Select Sector SPDR ETF
TLT iShares Barclay’s 20+ yr Treas. Bond ETF
VXX iPath S&P 500 VIX Short-Term FT ETN
AAPL Apple Corporation Equity
AMZN Inc Equity
BAC Bank of America Corp Equity
BIDU Baidu, Inc. Equity
BP British Petroleum Equity
C Citigroup Equity
CSCO Cisco Systems Inc. Equity
F Ford Motor Company Equity
GE General Electric Company Equity
GOOG Google Inc Equity
GS Goldman Sachs Group, Inc. Equity
MSFT Microsoft Corporation Equity
NFLX NetFlix Inc. Equity

Some securities such as QQQQ, SPY and IWM have both weekly and quarterly expirations.  There are a few heavily traded ETFs that, in addition to the standard monthly expiration contracts also have quarterly expiring contracts. These unusual contracts will expire at the end of the month in March, June, September and December. Many of the strike prices in these months will show different premiums for the same strike prices. For example, QQQQ may have two $45 strikes, one expiring on the third Friday and the other at the end of the quarterly trading month. The latter will show a slightly higher premium due to the added time value. Other ETFs that have quarterly contracts include SPY, DIA and IWM and others are expected to be added in the future.

For a week when the quarterlys and weeklys expire on a different day (quarterly does not expire on a Friday) the date in the ticker will differ and the two will be easy to distinguish.

When both the quarterlys and weeklys expire on the same day the exchanges will not create a weekly the week before expiration because the quarterly will serve the same parameters on that week as a new weekly would. It would have the same premium value (intrinsic and time value). Bottom line: when the weekly and quarterly dates are the same, there is only one option available per strike price.

Premium members: A complete list of securities with weekly and quarterly expirations has been uploaded to the “member resource” section of your premium site

Review of traditional option expirations:

All options are defined by an expiration month and date (the 3rd Friday of the month) after which the contract becomes invalid and the right to exercise no longer exists. When options began trading in 1973, the CBOE (Chicago Board Options Exchange) decided that there would be only four months at a time when options could be traded. Stocks were then randomly assigned to one of three cycles:

  • January cycle- options available in the 1st month of each quarter (Jan., April, July and Oct.)
  • February cycle- options available in the middle month of each quarter (Feb., May, Aug., and Nov.)
  • March cycle- options available in the last month of each quarter (March, June, Sept., and Dec.)

This proved to be a workable concept until options gained in popularity and there was a demand for shorter-term options. In 1990, the CBOE decided that each stock (with options) would have the current and following months to trade PLUS the next two months from the original cycle (hope your head isn’t starting to spin). Let’s simplify things by looking at a chart:

Current (Front) Month
Next Month
Third Option
Fourth Option
January Cycle
January February April (1st month) July (1st month)
February Cycle
January February May (2nd month) August (2nd month)
March Cycle
January February June (3rd month) September (3rd month)

If the current month is January, we see that all options are available for both the current (January) and next month (February). The last two option expiration months available will depend on their original placement in one of the three cycles:

  • January cycle- will also have April and July expirations
  • February cycle- will also have May and August expirations
  • March cycle- will also have June and September expirations

Now if your head has stopped spinning and you’re feeling a bit better, I ask you NOT to put away the Tylenol. Here come the LEAPS (Long term Equity Anticipation Securities) which are options with longer term expirations. Only heavily traded securities like Microsoft have these type of securities. These equities will have options with more than four months of expirations, some up to seven months. LEAPS can further complicate these cycles but that’s a discussion for another day. Suffice it to say that a vast majority of stock options will fall into the four month cycle.

Those of you following the Blue Collar System of selling predominantly 1-month options need not be concerned about those dates further out. However, intelligence does breed curiosity and many of you have “peaked” ahead and wondered what was up. Now we know so it’s back to generating cash by selling covered call options.

Market tone:

This was a terrific week in terms of positive economic news:

  • On Monday, the National Bureau of Economic Research’s Business Cycle Dating Committee announced that the recession of 2007-2009 ended in June of 2009.
  • The Federal Open Market Committee (FOMC) voted to keep federal funds rate between 0%  and 0.25% “for an extended period”  in order for the economy to expand.
  • The Conference Board’s index of leading indicators rose 0.3% in August, beating expectations.
  • New residential construction rose in August for the second straight month.
  • Sales of existing homes increased 7.6% in August in line with expectations but still historically low.

We cannot ignore the fact that economic growth is sluggish but palpable as unemployment still remains high. For the week, the S&P 500 rose 2.1% for a year-to-date return of 4.5% (including dividends).

The reason I remain “cautiously” bullish during this September run-up (and not more so) is that the market appreciation has occurred on unimpressive volume. Technicians always put more credence in the moving averages and momentum oscillators when they coincide with strong volume. That is not the case this month. Let’s look at a 1-year chart of the S&P 500 and view the strength of the last three uptrends:

S&P 500 Uptrends with Volume

 Note how the uptrend at the end of 2009 (red) and the early part of 2010 (blue) occurred on stronger and increasing volume while the most recent September 2010 uptrend has taken place on weaker and declining volume. As a result of this analysis, I am treating my trades as if the market will continue sideways until such time that bullish indicators are confirmed with stronger volume.


IBD- Market in a confirmed uptrend

BCI- Cautiously bullish selling both I-T-M and O-T-M strikes

Wishing you much success,

Alan ([email protected])


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.

92 Responses to “Options That Expire Weekly and Conventional Expiration Cycles”

  1. owen September 26, 2010 10:43 am #

    Very informative, Alan. Thank you.

    My first inclination is to say that weeklies might be useful for very volatile stocks, but then I see GE and F on the list above, and I wonder what a weekly could be good for. GE’s volatility is so low that the Jan 2010 $17.50 call is only $1.65 with the stock at $16.66 now. While 15% for 16 months is not too shabby, I can’t imagine that a weekly call will be more than the commission to buy it.

  2. owen September 26, 2010 10:46 am #

    A reminder to those who take psychology of the market into account. September 30 is the end of the third quarter. Many fund managers will be selling losers to “window dress”. So, be careful of the volume as an indicator of something special.

  3. admin September 26, 2010 12:40 pm #


    Great point as always. Here is a link to an article I published three years ago that touches on the subject of “window dressing”.


  4. Dirk September 26, 2010 2:37 pm #

    My Tylenol bottle nears the bottom and I try to ignore the upper part of this blog, Alan. . .:>)
    until I am more comfi with the “normal” business.

    Instead of using my Sunday of playing around with the idea of weekly options and which possibilities they could have, I am asking everybody interested for some help on a real world decision.

    Owen, in your response # 52 to Mark of last weeks blog you did some explanation, that unwinding sometimes does not give you an immediate better ROO, but if you use the money to make more money with another stock in the same cycle, then your annualized return increases.
    Even when the unwinding produces a temporary short loss.
    I commented already on that, but then went through my portfolio and did some numbers crunching.
    Don’t get me wrong, 3 weeks ago, before I joined the BCI family, I would have jumped to the ceiling, making ROIs (at the time still ROI) of 2 to 6% in 4 weeks.
    But now you guys got me thinking on how to make even more out of the few Dollars I have.
    It’s all your fault!!!!! :>)
    I played the numbers below first with the ESOC calculator (Unwind Now Tab) and had some problems with the results until it dawned me, that the results on the right side are based on 1 contract = 100 shares.
    There is no option to plug in your real number of shares or contracts on the left side. . .
    Then I calculated it all by hand and realized the source of my confusion.

    Now, here the facts and the question:
    I bought TIBX on 9/17 for $15.87 and sold the Oct. 16 call 3 days later for $ 0.80
    That was a ROO of 5.04% not factoring in the commission. That was biiig for me.

    Now, since TBIX raced to the moon :>) and is trading at $18.43 I thought about the unwinding.
    Again it’s all your fault, that I am not happy anymore with my profit.:>)
    Buying back the option would cost me $2.55
    Deducting my $0.80 I got already, that would bring down the “loss” to $1.75
    The sale of the stock would gain me $2.56 minus the above loss of $1.75 turns out to be $0.81

    That’s only $0.01 more than before, but I have back my money and can use it to make even more in the remaining 3 weeks.
    That is almost too good to be true!

    Is there something wrong with the above calculation?
    Please, all comments are welcome, even if it hurts. . .


  5. Don B September 26, 2010 3:34 pm #

    Hi Alan & All –

    Here goes an extended one – you might want that Tylenol bottle again!

    On weekly options, I am making some comparisons to the monthly using GDX and its weekly, expiring 10/1, to that of 10/16, and using the nearest OTM option, the 56. 100 shares to buy at 55.83. STO the weekly at .67/55.83=1.2% for 5 days, annualized 87%. If called, .67 + .17 = .84/55.83=1.5%. So divide that by 5 and multiply by 365 to = 109%. NOW monthly: Same call. Bid 1.30/55.83=2.32% 3 weeks. 2.32%/3 then times 4 to get one square 4-week month =3.1% month x 12 = 37.2 ann. If called 1.30 + .17 = 1.47/55.83 = 2.6% 3 weeks. Divide by 3 then x 4 = 3.5% Mo x 12 = 42% ann.
    Yes, I know we do not really need to find a 4-week month, as we could still annualize it, but just for comparison purposes.

    With the weekly it seems there is less risk, due to less time, but as a percentage more commission cost. On the above, if I took say 200 shares as an example, my comm. would be 7.95 + 1.50 or 4.7c per share.

    Comments solicited from all corners. TIA.

    Don B.

  6. Don B September 26, 2010 3:42 pm #

    PS to my #5.

    Without all the math, it can be readily seen that one gains 67c in five days, but only gains about double that, 1.30, in triple the amount of time. I.E. one week compared to 3. !!!

    Don B.

  7. Dirk September 26, 2010 5:11 pm #

    A post scriptum question,
    how do we tread the profits on a cc which expired the month before and we kept the stock and wrote another call on it?
    Do we treat this usually as two separate deals?


  8. admin September 26, 2010 5:53 pm #


    This week’s “Weekly Stock Screen and Watch List” has been uploaded to your premium site. The ETF report was published last Friday


  9. admin September 26, 2010 6:02 pm #

    Dirk (#4),

    Your profit thus far is $.80 on option premium + $0.13 on share appreciation = $0.93. On an investment of $15.87 that calculates to a 5.9% return. It also now has HUGE protection due to the price run-up to $18.43. Congrats!

    Here’s how I determine if I will unwind mid-contract. It’s all about the amount of time value remaining in the option premium. If the cost to B-T-C is $2.55 and the additional share value that trade will result in is $2.43 ($18.43 – $16), there is $0.12 of time value that trade will cost you. If you can use that cash to generate more than $12 per contract, unwinding should be given consideration. I especially like to unwind early in the contract cycle.


  10. admin September 26, 2010 6:22 pm #

    Don (#s 5 and 6),

    The main purpose of writing this article was to explain the different expirations inherant in some of these option chains in hopes our members will not make errors in their trade executions. Before using these short-term options for cc writing I would paper trade first to see if any alterations in strategy need to be made. My major concerns are :

    1- No time for exit strategy repair
    2- Small field of securities available for these 1-week writes.
    3- What is the liquidity of these options. etc.

    My conservative nature forces me to really master something before I invest my hard-earned money in it. Perhaps I am too conservative but remember there is absolutely no track record for cc writing 1-week options so it is risky for that reason alone. I do, however, admire the ambition and hard work you and many others in the BCI community devote to our financial well-being. That is why we can all learn from each other.

    One other minor point: When annualizing from a daily basis, multilpy by 250, the approximate number of trading days/year, not 365.


  11. Dirk September 26, 2010 6:37 pm #

    Great, thanks Alan!
    Hhhm, I didn’t see it this way so far.
    I did not factor-in the additional $0.13 at expiration. . .
    So, now I have 2 choices, if I want to unwind.
    I can take the $0.12 time value loss and get into a new position, which will easily offsets this, or I wait until the time value is at zero and get out then.
    But this assumes the stock stays stable for a while.
    How long would it take for the option to loose the rest of the time value?


  12. Don B September 26, 2010 7:00 pm #

    On my #5, where I divide in line five by 5 and mistakenly multiplied by 365, for days, I could have just as easily multiplied that 1.5% by 52, for weeks, and come to the same conclusion. Right?

    Thanx for pointing that out, and that of paper trading. I shall execute that tomorrow morning just to watch what happens. I have never paper traded. Evidently I need to simply record the option chain details, including Volume & OI of the strike, then see what developes each day this week. Yes?


    Don B.

  13. Dirk September 26, 2010 9:23 pm #

    Hi Don,
    maybe I answer this one.
    I do paper trading like any other trading.
    No difference.
    You have to eliminate just the temptation in your head to be more risky, when paper trading. . .
    I make up a hypothetical portfolio.
    Let’s say about 50K.
    I fill out an excel sheet for each stock I buy, the number of shares, price, commission and at the end of the row the cell with the appropriate formula to figure out the total .
    Next line I do the same with the option I sell.
    At the bottom of the sheet I have cells with the formulas to calculate my investment, my profit and my ROO.
    Every day I watch my paper trades with the same excitement as my real ones.
    (At least I try to. :>))
    Today I ran Alan’s calculator until it was steaming, to figure out, where I can unwind and do a double.
    I do it this way to get some good experience in figuring out which strikes to go for, calculating quickly my return, examining our four technicals, looking for news on my paper stocks etc. etc..


  14. Dirk September 26, 2010 9:33 pm #

    p.s. to my # 11, last question.

    I meant the biggest portion of the $0.12 time value in this particular case.


  15. Gary S September 27, 2010 1:26 am #

    Alan on your chart for the February & March cycles I believe you want February & March in the first two columns under the February cycle and March & April under the March cycle. Thanks.

  16. admin September 27, 2010 4:07 am #


    The chart makes the assumption that it is January. It then depicts the 4 option expirations that would be available for the stocks placed in the January, March and April cycles. All securities would then start with the current month (January), the next month (February) and then the next 2 months which would differ based on the particular cycle that security was assigned to. EVERY SECURITY WILL HAVE THE CURRENT AND NEXT MONTH AVAILABLE NO MATTER WHICH MONTH WE CURRENTLY ARE IN.


  17. Dirk September 27, 2010 8:25 am #

    @ Alan or anyone who likes to comment.

    My question goes in the area of an exit strategy, when the underlying stock together with the call we sold start to erode.
    Through your long term experience we have learned that we should buy the call back during the first 2(3) weeks, when the ask price is down to 20% of its original and during week 3(4), when the ask price is down to 10%.

    My thoughts are going in the direction of the stock protection.
    In a rolling down strategy we try to eliminate or reduce our losses during a period where the stock price deteriorates by applying the above rules.
    In your experience, is it also safe to apply a “Stock” rule instead of an “Option” rule?
    E.g., if a stock goes down and the technicals don’t look exiting, can’t we just buy back the call and sell the stock, when the combined exit proceeds meet the combined entry price?
    Or don’t those numbers match up?


  18. owen September 27, 2010 9:54 am #

    Dirk: Response to #7

    They are separate transactions. The only time you combine them into one transaction is when the stock gets called away.

    Your expired option is a gain. The sale date is the date you sold the call. The purchase date is “EXPIRED”. If you cannot get that into the date field, use the expiration date. The proceeds are what you received when you sold the call, and your basis/cost is zero.

    You still own the stock, with its original purchase date and cost. DO NOT REDUCE THE BASIS OF THE STOCK BY THE OPTION PROCEEDS!!! I have seen some brokers doing this. IT IS WRONG!!!

    Alan and I have spoken about the possibility of me writing one of the weekly blogs on taxes and reporting. Perhaps next month, after the final deadline for personal income taxes, I might.

    Also, people, please do not get blinded by % returns. They are useful to compare two trades, now, side by side, to help you decide which is a better choice. BUT, you are in this for the MONEY ($US, $A, it doesn’t matter. You can’t spend %). If you proudly report you made 125%, and then go on to tell me it was $65, and then tell me you could have made $165, but it was only a 40% return, I will personally send someone to your house to confiscate Alan’s program from you.

  19. admin September 27, 2010 10:55 am #

    Dirk (#11),

    1- You have a 3rd choice and that is to do nothing as you have generated a great profit and it is well protected.

    2- Time value will approach zero in two ways: First and obvious is as we approach expiration Friday (time decay falls off a cliff). Second is if the strike goes deep, deep I-T-M. The second scenario is the one that may permit us to take advantage of the mid-contract unwind exit strategy.


  20. owen September 27, 2010 11:22 am #

    OOPS! In my #18 answer to Dirk I indicated that the word expired goes in the purchase date. The expiration date goes in the purchase date. The word expired goes in the cost/basis column. You can use zero if you have a finicky tax program. (For $15,000 you can bet our program has a special code to enter expired)

  21. admin September 27, 2010 11:34 am #

    Mid-contract unwinds- real life example:

    Just a followup to this discussion: I noticed that MELI was up $4 today. I have sold several contracts on this equity some I-T-M and some O-T-M (at the time of sale). Now, of course, all strikes are I-T-M. I took a look at the $70 calls and found that I can close my short position for $6.80, $0.80 of which is time value. That is 1.1% of the current value of the stock which is $70, the strike price. I can now do the following:

    1- Nothing- I have a great profit and huge protection.

    2- Close my position and use the cash to open a new one with a different equity that generates more than 1.1%.

    3- Wait for MELI to appreciate even more and the time value to decrease even more and then execute a mid-contract unwind.

    One of the beauties of cc writing is the immense control we have over our financial destinies and this strategy is a great example of that.


  22. Dirk September 27, 2010 11:42 am #

    Thanks Alan and Owen for the clarification.

    I’ll start putting trades from this month into Alan’s provided schedule D and will probably have some more questions in this regard.

    And if you would really find the time to write a blog on taxes and reporting, that would be terrific for all of us Owen.


  23. owen September 27, 2010 2:01 pm #

    Sounds good, Dirk. Reminder to everyone: There was a typographical error on the description of the transactions to be entered into the Schedule D page “Code D5”. It is for options which were SOLD (not BOUGHT) and expired worthless. The formulas are correct.

    If you bought a call, and it expired worthless, first, bad luck, and second, the cost goes in the cost column and “EXPIRED” goes in the proceeds column.

  24. Dirk September 27, 2010 3:56 pm #

    How do you handle the buy-back of an option and sell the stock in the schedule D?
    It does not seem to fit any code.
    Do I put the stock purchase and sale in code 1 and the option sale and buy-back in code 3?


  25. owen September 27, 2010 4:06 pm #

    It creates two closed trades. You sold a call and bought it back, for a gain, or a loss. You bought a stock and sold it, for a gain, or a loss. Your code 1 and code 3 pages are correct.

  26. Allan M September 28, 2010 12:32 am #

    Refering to above , Alan said “All ETFs outperforming the S&P 500 are eligible”.

    Before doing the ROO, are there other fundamental/technical analysis to qualify a certain ETF in the BCI system?

  27. admin September 28, 2010 1:34 am #


    I eliminate ETFs with low trading volume and , of course, any that do not have options associated with them. Outside of those parameters I favor those ETFs that have been the best performers over the past 3 months and the sector S&P ETFs that are the best performers relative to the overall market.


  28. admin September 28, 2010 1:35 pm #


    A stock currently on our premium watch list had its third consecutive positive earnings surprise on July 29th. Earnings rose 50% and revenues 26% year-to-year. As a result analysts are raising guidance and share appreciation has been on the move. Despite the rise in price, the stock is trading at a reasonable 11x forward earnings with a PEG ratio of 0.6. The price/sales ratio is @ 1.4 lower than the industry average of 2.6.


  29. Steve September 28, 2010 3:37 pm #

    I did my first mid contract unwind today. I bought lulu after the 9/10 earnings report and sold the at the money $42 strike price for a 4.5% return. Today I bought the contracts back for a loss of $15 per contract. I then used the cash to buy vit for $32.71 and sold the $30 strike price for $3.40. That’s another 2.3% profit with protection!

    Now I’m looking for more…..


  30. Dirk September 28, 2010 4:27 pm #

    Now we wanna see, if this works with the photo/screenshot upload.
    Here is a first one just for testing, even-though it is a nice stock on our watch list . . .

  31. Dirk September 28, 2010 4:30 pm #

    I pasted the URL in the website box and not in the comment box.
    Here we go again!


  32. Dirk September 28, 2010 4:46 pm #

    I’d like to comment on Steve’s VIT purchase of today.
    This one is deep in the money and gives him a lot of protection. . . but, if called away, the profit is “only” 2.1%
    If the stock stays roughly there, where it is now or appreciates some, it will get called away.
    How can he make more money than the $0.69?

    How do the numbers work out usually towards the end of our cycle?
    Is this an opportunity to buy it back then because of the depreciated time value?


  33. owen September 28, 2010 5:56 pm #


    Good question. 69 cents is not a large profit, but, if Steve gets 2.3% for three weeks, and he is happy with it, hooray for him. If he traded 1,000 shares, then he is looking at $690, instead of $69. It doesn’t matter. Could he have a earned a larger dollar return, with the same 2.3% return? Probably, yes. Should he have? It’s not our money, it’s not our call.

    Everyone has a different risk tolerance. He is the only one who has to be satisfied with his results. VIT has a 52 week high of $32.97. Being conservative in thinking the downside protection is more important than upside potential, when you are buying at $32.71, seems prudent to me.

  34. admin September 28, 2010 6:15 pm #

    Steve (#29),

    Congratulations on a fabulous series of trades…you are a true Blue Collar Investor! Regarding the comments by Dirk and Owen about selling the I-T-M strike that depends on your risk tolerance. With only 13 trading days remaining until expiration locking up the 2.3% additional return (slightly less really when subtracting the $15) and also having that downside protection makes a lot of sense. In a strong bull market, a more aggressive approach may be justified. Either way, these trades exemplify how a mid-contract unwind exit strategy works and I thank you for sharing them with us.


  35. Dirk September 28, 2010 7:01 pm #

    Sorry Steve,
    for me not gratulating you to this nice trade.
    I was so involved in my studying and numbers comparing, that this went under. . .
    @Alan and Owen,
    my question was more towards the possibility, if it makes sense to buy VIT back in this case when the time value erodes.


  36. Dirk September 28, 2010 11:18 pm #

    Alan worked hard with his webmaster to give us the opportunity to show some screenshots and/or photos.
    Thanks a lot Alan, now we can share our ideas and suggestions and can complement them.
    A pic is sometimes worth more than 1000 words. . .

    I’d like to show another screenshot of a VIT’s volatile day where Steve caught VIT at a good price.


  37. Steve September 28, 2010 7:37 pm #

    Thanks guys. I got so excited I had to post it.

    Good luck.


  38. Allan M September 29, 2010 12:51 am #

    Cashing on CC page 151-152 talks about diversification. Using minimum 5 stocks, 20% max for each stocks of the portfolio.

    During market sellout, like what happen in 2008, will this strategy gonna work? Otherwise, what other risk management you have to apply on your portfolio during those period?

    Cashing on CC page 155-157 talks about DCA for ETF. Assume you accumulated 300 shares of stocks with average cost of $10/share.. Will you sell deep ITM or ITM?

  39. Dirk September 29, 2010 10:40 am #

    this looks like, one has to decide where the personal risk tolerance is, right?
    In todays market and my low risk tolerance, I am more inclined towards the downside protection.

    What is your take on this?


  40. admin September 29, 2010 8:16 am #

    Screenshots and photos:

    By clicking on the image like the one Dirk uploaded in #37 you will see a larger view and then by hitting the back arrow you will return to this page.


  41. admin September 29, 2010 8:30 am #

    Allan (#38),

    1- 2008 was an extreme aberration. Selling covered calls and using every management technique will result in a lower loss than most but a loss nonetheless. In August of 2008 I finally moved my cash out of the market and re-entered early in 2009. Over the past two decades it had been rare that this has occured.

    2- Strike selection is based on:

    – personal risk tolerance
    – market tone
    – technicals of the underlying security

    I discuss this in detail in my second book, “Exit Strategies for Covered Call Writing”.

    A deep I-T-M strike premium will have a lower time value (our profit) with more protection. Run the numbers obtained from the options chain through the single or multiple tab of the Ellman Calculator and decide which strike is best for you based on return, protection and upside potential.


  42. admin September 29, 2010 8:47 am #


    Down in pre-market due to an SEC investigation:

    I will be looking to close my short positions on this stock if the price meets my 20%/10% guidelines.


  43. admin September 29, 2010 10:17 am #


    Up over $1 in early trading due mainly to increased chatter regarding takeover rumors.


  44. Dirk September 29, 2010 10:49 am #

    GMCR caught me by surprise and I closed my short position at 17%.
    Question is, how serious the allegations are and if the stock recovers from it. . .
    how and when did you learn from this SEC investigation?


  45. admin September 29, 2010 11:04 am #


    There is no right or wrong on strike selection but I’m with you on this one. With less than 3 weeks remaining I am more comfortable with the additional protection of the $30 strike. Keep in mind that I am extremely conservative with my trades.

    A great site for stock news:


  46. owen September 29, 2010 5:04 pm #

    Dirk, #43

    My opinion is in #33 above. VIT has a 52 week high of $32.97, only a few cents above the current price. It has had a fairly decent runup. I would lean toward the downside protection. I know that the stock hit a new 52 week high for about 8 weeks running, but I am one of those people who feels that by the time everyone notices, it’s about time to start heading for the door.

    That’s just me. I don’t want to get any nasty emails if you sell the $30, and the stock goes to $45. Our covered call writing is designed to lessen the risk. If you can afford 200 shares, there is nothing keeping you from selling one $30 call and one $35 call.

  47. JP September 29, 2010 5:19 pm #

    @Alan (#40):

    I’m curious what prompted you to exit the market in Aug 2008 – were there quantitative factors that led to your decision (e.g. VIX?).

    Also, do you (or any others) have any opinion on using protective puts for extra downside protection? I.e., something like this:


  48. Dirk September 29, 2010 6:09 pm #

    Hi Owen,
    you would only get nasty e-mails, if would have announced, that this is the greatest stock in the world. . . and then it went down. :>)

    Before I posted the calc cut at #43, I went already for the $30 strike.
    I am not that experienced and I saw the steady climb and the 52 week high and I thought that there will be some cashing-in.
    And I went for the downside protection.
    I just wanted to know, what the community thinks, to help form my “trading style”.
    The more jump-in, the better for beginners like me.
    And I did not think of splitting it.
    That would have been a great opportunity, because the stock price was just in the middle between the strikes.
    Maybe next time.
    And thanks Alan for the stocknews link!

  49. admin September 29, 2010 6:40 pm #

    JP (#47),

    I exited the stock market in August 2008 for several reasons:

    1- Plummeting overall market
    2- Accelerating VIX
    3- Failing housing and banking sectors
    4- Lack of liquidity for businesses and the private sector
    5- Despite using every sound financial principle that I learned over the past two decades, I was losing money, less than most, but losing nonetheless.
    6- The status quo was not an option (no pun intended). It simply was time for action.

    Protective puts takes an already conservative strategy and makes it even more conservative. It will decrease your returns but perhaps help you sleep better at night if you are to the right of conservative. Here is an article I wrote on this subject:


  50. JP September 29, 2010 6:58 pm #

    @Alan (#49):

    Thanks for your reply and the link to the article you wrote. I’m a novice investor and don’t want to lose too much of my equity if the bottom falls out of the market soon after I start trading (I’m still paper trading for now). I think protective puts might help me sleep better at night, at least until the macro picture starts looking healthier than it is now, and until I get some more experience with your system during less favorable market conditions.


  51. Allan M September 30, 2010 8:22 am #

    I applied the Dollar Cost Analysis from CC book of Alan.

    QQQQ today is $49.29


    1. For the month of Semptember, purchase QQQQ every week. Total Cost is 14501.77, Ave. Stock= 14501.77/300shares = 48.34

    2. Go to Yahoo Finance and get Call Oct for QQQQ

    3. I input the Ave Stock Price (yellow) , Option Premium (green) and Strike price (blue) on the ROO calculator excel

    Very interesting is the CC for Call Oct 46.
    DP=4.8%!! considering Stock is trading at 49.29 today

    Did i miss something anything on the calculations.

  52. Barbara, September 30, 2010 6:53 am #

    Hi Alan,

    I’m a novice too. I was thinking of starting with ETFs. My question is how earnings reports factor into your decisions when using ETFs.

    Thank you.


  53. Dirk September 30, 2010 7:02 am #

    Good morning everybody!
    @ Barbara,
    that is a good question.
    I think, there are so many companies in a ETF, that ERs can’t play a role here.
    But lets see what the experts have to say.


  54. Dirk September 30, 2010 9:03 am #

    @ Allan M
    Looks like a winner. . .:>)
    The $46 strike has the most potential imho.
    The $ 47 strike has a gain of only 0.1 more than the $46 strike, but you give up 2% of you dp.
    The $48 strike has .5% more ROO but no upside and almost no downside.
    The $49 strike is the next best bet with 3.6% ROO, if assigned.
    And it gives you about a Dollar dp, because you bought the stock at $48.34 and get a Dollar premium.
    I am not sure why the premium does not show up as dp. . .
    Maybe Alan or Owen have some comment to that.
    The pivot points for QQQQ for today are: Pivot High: $49.410, Pivot Low: $48.990

    If the sentiment would be more bullish then the $49 strike would make sense, but my gut would let me take the $46 strike, I suppose.

    But that is just me, a novice in this business and always in fear of loosing some Dollars.


  55. Dirk September 30, 2010 9:15 am #

    WOR had its ER yesterday with 6c more than estimated.
    Scouter rating of 5, and trading about $2 below its 52 week high, which was in January.

    Would be worth watching. . .


  56. admin September 30, 2010 3:08 pm #

    Barbara and Dirk (51 and 52),

    Dirk is 100% correct. Because ETFs consist of a basket of stocks each individual ER plays no role in our overall decision as to whether to include this security in our portfolio. My experience has been that ERs in an ETF balance each other out and cannot hurt us in the same way a negative report of a single stock can impact our results.


  57. admin September 30, 2010 3:23 pm #

    Allan and Dirk (53 and 54),

    Your discussion regarding these calculations is brilliant! I can’t tell you how good this makes me feel. I’m sure that there are many experienced brokers and investors who would be scratching their heads wondering how you achieved this level of sophistication.

    Regarding Dirk’s question about the lack of protection noted in the $49 O-T-M strike:

    In my system, I distinguish between the “breakeven” and “downside protection”. Breakeven is always the full option premium. Downside protection is the intrinsic value of the option premium (applies only to I-T-M strikes) and it protects the ROO or time value of that premium. Our system is all about generating a monthly cash flow so the DP relates to that profit. By breaking it down this way it makes strike selection easier to understand and determine.


  58. Mark September 30, 2010 6:18 pm #


    I have 12 different stocks where no one stock is more than 10% of my portfolio and I don’t have more than 20% in any one industry so I am well diversified. Am I correct in saying that generally speaking I am going to get better returns from individual stocks than ETF’s or is there still a place for them?

  59. Don B September 30, 2010 6:33 pm #

    Alan, on weekly expirations –

    Using the current expirations as an example: I noticed that today Thurs 9/30, a new weekly series of options has been introduced in GDX. It expires on Friday 10/8. There has already been in place a weekly, in the same, that expires on Friday October 1. But the CBOE always calls the Saturday as the expiry for the monthlies. Knowing that in the case of the monthly that the last trading day is on Friday (in this case 10/15), does this mean that the last trading day of these weeklies would be on Thursday, 9/30 & Thursday Oct. 7? Thanx much.

    Don B

  60. Don B September 30, 2010 6:35 pm #

    PS to my #59 – That is, was today, 30th, the last trading day of those Oct. 1 options?

    Don B

  61. admin September 30, 2010 7:06 pm #

    Mark (#58),

    As a rule stocks will return a higher premium than ETFs due to the higher volatility of equities. However, there is definitely a place for ETFs for some investors:

    1- Lower risk is the tradeoff for lower returns.
    2- Less management (ERs not a concern etc.)
    3- Less cash needed because of the instant diversification offered by ETFs
    4- A good option for very conservative investors

    When trading with individual equities, we are undertaking more risk and investing more time but getting well paid for these liabilities.


  62. admin September 30, 2010 8:06 pm #


    Weeklys expire on Fridays 4PM EST.

    Final settlements will occur the next day but for our purposes they expire on Fridays just like the monthlys.


  63. Dirk October 1, 2010 10:02 am #

    GMCR again.
    There was a lot of activity over night and a big sale of 333,000 shares right at 9:30 this morning.


  64. admin October 1, 2010 8:10 am #


    Recently hit a new multi-year high after a positive earnings surprise in late August which reported a 24% rise in revenues. As a result estimates have been increasing and analysts are jumping aboard. Those receiving our premium report will note that the beta of this company is 1.74 so there is inherant volatility in this equity above the average stock.


  65. Dirk October 1, 2010 9:44 am #

    @ All,
    any comments on GMCR?
    The new look bleak. It was slowly climbing after the first day of panic sales, but now. . .?
    It looks like a longer, unpleasant investigation’


  66. Dirk October 1, 2010 9:45 am #

    p.s. I meant “news”, not “new”.


  67. admin October 1, 2010 10:25 am #


    The question is whether there is validity to the fraud allegations being investigated….who knows? But this is certainly something that makes a great company unappealing to conservative investors. It reminds me of MED when the same thing happened in January. In that case there was a subsequent full recovery but will that happen in this case?

    I, too, hold a position in this company and bought back the option when the news was announced. If the stock continues to show weakness especially on a bullish day, the signs are not good. In similar circumstatnces in the past, I have either rolled down or sold the stock and moved into a new position in an attempt to mitigate losses. In situations when I held hundreds of shares, a combination of both choices can be employed.

    I ask myself this question: Given the current circumstances, would I buy this stock today at the current price or is my money best placed in another financial soldier?


  68. Dirk October 1, 2010 11:20 am #

    I’d like to go back one more time to Allan M’s QQQQ example above.
    (Since I am a member of the BCI family, I am breathing, living and dreaming stocks/options)
    This night I woke up and had serious doubts about the so called “intrinsic value”.

    We define the intrinsic value as the positive difference of the stock value and the strike price.
    Question is, which stock value?
    The current stock value, or the purchase price?

    When Allan M. bought QQQQ a while ago, he paid an average of $48.34 and in his above calculation the $49 strike would be OTM, if he would have sold a call right at that day.
    When he wrote his comment above and was going to sell the option, the stock was trading at 49.29 and that would place the $49 strike ITM.
    Do we use the purchase price or the current price for the calculator?
    Alan defines in his CCC book the intrinsic value as the value of the option “as if it were to expire immediately with the underlying stock at its current price”
    Since there would be a big change in the intrinsic value, when we take the purchase price of the stock, or its current price, it would consequently also change the time value.

    If we buy a stock and sell the option right after that or use the buy/write feature, this whole question does not appear, of course.

    I went back to the CCC book, the Exit book and other sources, but have not been able to really clarify this. (At least not for me :>))

    Maybe somebody can post an answer with a nice example.


  69. admin October 1, 2010 12:17 pm #

    Premium members:

    This week’s ETF report has been uploaded to your premium site. The funds highlighted have appreciated in value between 25% – 32% over the past 3 months while the S&P 500 has appreciated by 10%. The S&P 500 sector ETFs have risen by 13% – 18%.


  70. Barbara, October 1, 2010 1:09 pm #

    I noticed that most of the stocks on the premium stock list report the earnings in the November expiration cycle. What’s the best way to set up our portfolio when this occurs.


  71. Dirk October 1, 2010 1:21 pm #

    @ Barbara
    just wait for the new list at the weekend. :>)


  72. owen October 1, 2010 1:38 pm #

    Barbara (#70): Avoid those stocks unless the earnings report is after the Nov expiration. October options are fine. You just don’t want to be holding the stock on the earnings date.

    Dirk (#68): The intrinsic value is the amount of an option premium that is in the money. If you buy a stock at $48, and sell the $50 call for $1.38, there is no intrinsic value. It is all time premium. If you buy the stock at $48, and sell the $45 call for $4.92, there is a $3 intrinsic value and $1.92 in time premium.

    Remember, this is a snapshot. If the stock drops to $44, there is no intrinsic value left in the option premium. The intrinsic value is the amount that the option is in the money by at any point in time.

  73. Dirk October 1, 2010 2:01 pm #

    Thanks Owen,
    I was reading probably too much. . .:>)
    So, if we don’t sell he option right away, we still put the purchase price of the stock into the spread sheet and see hat intrinsic value we have, when we decide later-on on a strike price.
    Key word here: “At any point in time”.


  74. owen October 1, 2010 2:53 pm #

    Dirk, that’s correct. It doesn’t matter if you wait thirty seconds, thirty minutes or thirty days to sell the call. The intrinsic value is the amount of option premium that is in the money at the time you sell the call. In order to determine the return on your investment you enter the price you paid and the option premium at the time you are selling the call.

  75. owen October 1, 2010 3:00 pm #

    Dirk, be careful you don’t confuse the intrinsic value with the gain. If you buy a stock for $38, and wait until it hits $48 to sell the $45 call, there will be no intrinsic value for your situation. You bought the stock for $38 and are selling a $45 call. The fact that the stock is currently trading at $48 means nothing other than you are going to get a much larger premium for the call than you would have when the stock was $38.

  76. Barbara, October 1, 2010 3:12 pm #

    Owen and Dirk,

    Thanks for your helpful responses.


  77. admin October 1, 2010 3:16 pm #

    Barbara (#70),

    You may find this article I previously published helpful:


  78. Allan M October 1, 2010 3:27 pm #

    Looking back at my post (#53).

    There were gain/loss on the weekly purchase of the QQQQ using DCA on 9/27.

    On 9/27, the ETF is already $49.29.. the price of ETF on 9/7 , 9/13 (have gains) while on 9/20 (have loss) during the execution of Oct Call S-T-O.

    Is this already calculated on the ROO?

  79. Allan M October 1, 2010 3:43 pm #

    Will there be exercise of the ITM Calls (assuming ETF stays at 49.29 until expiration )? Because of DCA some ETF price are ITM while OTM depending on the Call Strike Price.

    The $46 Call is ITM for 46.6, 47.99, 49.66 and 49.29

    The $47 Call is ITM for 46.6 while OTM for 47.99, 49.66 and 49.29

    The 48 Call is ITM for 46.6, 47.99 while OTM for 49.66 and 49.29

  80. Dirk October 1, 2010 4:20 pm #

    @ Owen
    your #74 and #75
    I got it!:>) (Hopefully:>))
    And thanks again for the clarification; sometimes it has to go back and forth, that there are no misunderstandings. . .
    Let me summarize in short in my words and see, if I got it right.
    – The intrinsic value relates only to the purchase price and not to the current value of the stock. In your above example you are greatly protected by the stock appreciation and not by the intrinsic value.
    The fact that you sold the $45 call and the stock was trading at $48, gave you a much higher premium, but is not considered ITM and hence not intrinsic value
    – The break-even point then will be your purchase price minus the premium, which is an additional protection against losses.


  81. Dirk October 1, 2010 4:45 pm #

    @ Allan M
    do I understand it right, you sold 46,47 and 48 strikes?

    Imho every call gets exercised, where the ETF price, after the exp. Friday session, is higher than the strike price.
    No matter what.
    I could imagine an exception, when the stock plunges down during after hours trading on Friday night, but this is unlikely the case with an ETF.


  82. Allan M October 1, 2010 10:58 pm #

    Dirk (#81)

    I just compared the 46, 47 and 48 strikes.
    The one im using in the paper trade is 46.

    But im confused on the intrinsic value and upside of the ROO?! 🙁

    Those previous week’s number of ETF shares ETF have appreciated on the last week and I don’t know if that was already calculated on the ROO.

    Hi Alan, can you comment on this?

  83. admin October 2, 2010 8:34 am #


    Intrinsic value and Upside potential:

    In the BCI system we distinguish between breakeven (cost of shares minus entire option premium) and downside protection. The latter applies only to I-T-M strikes and protects the ROO or time value of the premium. For example, if you bought a security for $52 and sold the $50 call for $3, $1 is the ROO or time value, our profit. $2 is the protection of that profit and is used to “buy down” the cost of the shares.

    ROO = $100/$5000 = 2% per contract

    Downside protection = $200/5200 = 4%

    This means that our 2%, 1-month profit is protected as long as our shares do not depreciate in value by more than 4%. The Ellman Calculator will do the math for you using either the single or multiple tabs.

    Let me know if this explanation turns that sad face to a smiley face.


  84. Don B October 2, 2010 12:50 pm #

    Allan M –

    In #79 in your second & third sentences (bottom) where you break down your ITM & OTM. Perhaps I am reading you wrong, but it looks like you reversed them, to me. A $47 call would be OUT of the money for a 46.60 price. And I believe you have them reversed in your third sentence, at the bottom, as well. Your thoughts?

    Don B

  85. Dirk October 2, 2010 1:04 pm #

    @ Allan m and Don B
    funny, I just was going over Allan’s numbers again and was scratching my head too.
    Going back to your #79 Allan, all strikes inside of $48.34 are ITM and all strikes outside of 48.34 are OTM.
    Because you bought the stocks for $48.34, right?

    At least that’s what I learned here so far.:>)


  86. Allan M October 2, 2010 1:32 pm #

    Alan (#83),

    For example, if you bought a security for $52 and sold the $50 call for $3, $1 is the ROO or time value, our profit. $2 is the protection of that profit and is used to “buy down” the cost of the shares.

    The above is the straightforward purchase of 100 shares ($52) then sold an ITM call. But on paper trade for ETF DCA strategy, we purchase the ETF at different price level until we accumulate 300shares (79+77+74+70shares) in 4 trades (46.6,47.99,49.66,49.26).

    Then a $46Call x 3 contracts were sold at 3.46.
    So the time value and protection is not the same for all price level.

    Is the difference of time values/protection for the 4 price level (46.6,47.99,49.66,49.26) already included on the ROO?
    What happen to the appreciation of 46.6 and 47.99 when the stocks move to 49.26?

  87. Allan M October 2, 2010 1:36 pm #

    Don B (#84)

    Yes. Thanks for the correction .. It should be..

    The $46 Call is ITM for 46.6, 47.99, 49.66 and 49.29

    The $47 Call is ITM for 47.99, 49.66 and 49.29 while OTM for 46.6

    The 48 Call is ITM for 49.66 and 49.29 while OTM for 46.6, 47.99

  88. owen October 2, 2010 1:40 pm #

    In-The-Money (ITM) and Out-Of-The-Money (OTM) are being thrown around here, and I think people are focusing on the terms, rather than the results.

    Whether or not a call option is ITM or OTM is calculated at a point in time and for one situation at a time. If Dirk buys a stock at $44 and waits, I buy the same stock at $46, and then we both sell the $45 call, we have different situations at that point in time. The $45 call is ITM when the stock is above $45, and OTM when it is below $45. For Dirk, the call is out of the money for calculating his potential gain or loss, because his cost basis is $44. When he sold the call, the call was in the money, but that description is meaningless for his particular calculation. At that point his upside potential has already been reached, but he should still calculate his ROO as Alan and I have instructed him.

    Your option choice depends on a number of factors. The primary factor is your confidence in the market.

    If you believe that the markt may decline somewhat, or at least your specific stock may, then you may want to sell a call which is below the current price (it doesn’t matter if you just bought the stock or you’ve owned it for a year). What is important is that you get some sort of time premium that gives you a bit of a profit. Otherwise, you might as well just sell the stock now.

    If you feel the market/stock may move sideways for a while, you may want to sell the call with the closest strike price above the current market price. That will let you capture the premium and keep the stock.

    If you feel the market/stock may continue its upward climb, you may want to sell a call with a strike price further above the current market price to capture that upside and some additional premium.

    Don’t get bogged down with the terminology. You bought some stock. The call you sell depends on your feeling for the market when you sell the call. It doesn’t matter if you bought the stock last year, last month or thirty seconds ago. The object of the game is to make money. Are your going to make money on the trade if things go the way you think they will? Good. If you won’t make money, then don’t do it. if you’re afraid the stock will tank, or there is an earnings report coming, get rid of the stock, or don’t buy it in the first place.

  89. Allan M October 2, 2010 1:47 pm #

    Aha!!! I get it now.
    Thanks Owen for the explanation.

  90. admin October 2, 2010 2:05 pm #

    The floor of the New York Stock Exchange:

    A few weeks ago I had the rare opportunity to tour the floor of the NYSE and speak with some of the market makers. I learned some interesting things and was surprised by others. I will share my story in the next journal article which will be published on this site later this weekend.


  91. owen October 2, 2010 2:59 pm #

    You’re welcome, Allan. I get frustrated when I think I haven’t been able to get the point across. I was a little verbose above, but it is important that everyone understand.

    People should use this checklist if they are still a little uncomfortable.

    Am I going to make a profit if the stock gets called?

    Am I going to make a profit if the stock does not get called?

    If the stock does not get called, am I going to be comfortable continuing to own the stock?

    If you answer no to any of those questions, do not buy the stock. (If you already own the stock, consider getting rid of it.)

    If you answered yes to them all, is there a stock with a better reward for your investment?

  92. owen October 2, 2010 3:01 pm #

    One “L” Alan, thanks. We were running out of room for our discussions on this article. 🙂

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