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Exit strategies for covered call writing and selling cash-secured puts are critical in achieving the highest level of our trading returns. In this article, a real-life example with SPDR S&P Homebuilders ETF (NYSE: XHB) will analyze a cash-secured put trade with 3 exit strategy implementations. Watch how the trade starts out with significant initial returns, then gets even better and finally turns dramatically against us. Exit strategies save the day!

Real-life example with XHB

  • 7/11/2024: XHB trading at $105.89
  • 7/11/2024: STO the 8/16/2024 $103.00 OTM put at $2.00
  • 7/22/2024: XHB price accelerates to $118.66
  • 7/22/2024: BTC the 8/16/2024 $103.00 put at $0.56
  • 7/22/2024: STO the 8/16/2024 $110.00 put at $1.82 (roll-up #1)
  • 7/31/2024: XHB trading at $118.75
  • 7/31/2024: BTC the 8/16/2024 $110.00 put at $0.62
  • 7/31/2024: STO the 8/16/2024 $115.00 put at $1.72 (roll-up #2)
  • 8/2/2024: XHB price decline to $111.50
  • 8/2/2024: BTC the 8/16/2024 $115.00 put at $1.45 (3% guideline)

Graphic representation of the XHB cash-secured put trade with exit strategies

XHB put trade: Initial calculations using the BCI Trade Management Calculator (TMC)

  • Brown cells: 37-day return of 1.98%, 19.53% annualized
  • Purple cell: If exercised, shares are purchased at the breakeven price point of $101.00 (yellow cell), a 4.62% discount

Exit strategies executed in this series of put trades

Rolling-up: Buying back a put option and selling a new option at a higher strike with the same expiration date. This takes advantage of share price acceleration

3% guideline: Closing a cash-secured put trade when share price declines 3% or more from the strike price sold (3% from $115.00 = $111.55). Thís protects us from substantial share price decline

Option credits & debits

  • Credits: $2.00 + $1.82 + $1.72 = $5.54
  • Debits: $0.56 + $0.62 + $1.45 = $2.63
  • Net credit: $2.91 per share, $291.00 per contract
  • Cash required to secure the $115.00 put = $113.28 per share
  • Final realized return = $2.91/ $113.28 = 2.57%

Discussion

Exit strategy implementation for this cash-secured put trade turned a 37-day 1.98% initial return into a 21-day 2.57% final realized return. The cash freed up from closing the trade can be used to initiate a new cash-secured put trade with a different underlying security and generate another income stream, still in the same contract cycle.


Poor Man’s Covered Call Calculator

The PMCC Calculator is designed to determine initial trade structure and status as well as various position management price point considerations the exit strategy price buyback points to buy back the short calls based on the 20%/10% guidelines detailed in the BCI books and online video programs.

Cells will be provided to enter the option month and current date used to assist with the calculations. There are 5 tabs incorporated into this calculator:

For a video tutorial and more information click here. 
 


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to publish several of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan,
 
Following your principles, I have consistently made at least $60,000 annually with covered calls and cash-secured puts.  Your system works!
 
Thanks again,
Lucy
 
Recent Quasar Market Live interview
 

Upcoming events

1. BCI-only Webinar

1/16/2025

8 PM ET – 9:30 PM ET

The Collar Strategy: Covered Call Writing with Protective Puts

Protecting covered call trades from catastrophic share loss 

This is the strategy Bernie Madoff pretended to use. He called it the split strike conversion strategy, but it was simply a collar. The covered call sets a ceiling on the trade and the protective put guarantees a floor on the trade.

Topics discussed

  • What is the collar strategy?
  • Uses for the collar
  • Entering a collar trade
  • Option basics for calls
  • Option basics for puts
  • Real-life example with NVDA
  • What is an option-chain?
  • Real-life example using the BCI Trade Management Calculator (TMC)
  • Strategy pros & cons
  • Educational products & discount coupon
  • Q&A

Click here to register for free.

2. Long Island Stock Investor Group Part I

Zoom

February 13, 2025

7:30 – 9:00 ET

Private investment club

Covered Call Writing Dividend Stocks

 

3. Las Vegas Money Show

February 17 – 18, 2025

  1. Ultra Low-Risk Approaches to Covered Call Writing and Selling Cash-Secured Puts
  2. Covered Call Writing Technology Stocks

Register here.

4. Long Island Stock Investor Group Part II

March 13, 2025

7:30 – 9:00 ET

Private investment club

Cash-Secured Puts: 2 Outcomes

5. MoneyShow Masters Symposium Dallas 2025

Saturday April 5, 2025

Hilton DFW Lakes

Saturday April 5, 2025

Hilton DFW Lakes

2 events:

45-minute workshop

Selling Cash-Secured Puts to Buy a Stock at a Discount or to Enter a Covered Call Trade
 
Selling cash-secured puts is a low-risk option-selling strategy which generates weekly or monthly cash-flow. This presentation will detail how to craft the strategy to buy a stock at a discounted price or to initiate a covered call trade. Topics included in the webinar include:
  • Option basics
  • The 3-required skills
  • Practical applications
    • Traditional put-selling
    • PCP (Put-Call-Put or wheel) Strategy (adds covered call writing)
    • Buy a stock at a discount instead of setting a limit order
Real-life examples along with rules, guidelines and calculations are included in this presentation.
 

All Stars of Options panel discussion

Details to follow.

6. MoneyShow Masters Symposium Miami 2025

Thursday May 15, 2025

Details to follow.

Alan speaking at The All Stars of Options event in Las Vegas