The stock option strategies in our BCI methodology are based on years and decades of real-life trading experience. The information detailed in my books and DVDs is geared to giving us the best chance to achieve the highest possible covered call writing returns. This article is different. It is meant to start a conversation and is in response to an email question I received from a BCI member. The thrust of the inquiry was when is the best time to roll a weekly option?
Weekly options are gaining in popularity and that is why we are seeing more and more weekly products available to us. In a recent article I explored the standard weeklys vs. the expanded weekly program. Historically, weeklys are created on a Thursday and expire on the Friday of the following week. Should we roll our options on Thursday or Friday? This article is far from a scientific study but a venue to start a conversation and perhaps make some preliminary hypotheses.
I began this venture by selecting 4 stocks with weeklys that have been appearing on our Premium Stock Reports in the past few months:
On Thursday January 2nd, 2014 (mid-day) I captured the following information:
- stock price
- nearest in-the-money strike price
- cost to close (ask)
- option premium for next month’s same strike (bid)
- 1-week ROO (return on option)
- annualized ROO
The next day, also around mid-day I captured the same information to compare rolling out results. Here is a chart showing both Thursday and Friday results:
Note the following:
- Yellow rows represent Thursday’s stats
- Pink rows represent Friday’s stats
- YNDX and CTSH showed better returns on Thursday
- CELG and FB had better results on Friday
- YNDX and CTSH went up in value from Thursday to Friday so rolling on Thursday was the better choice in these cases (looking back)
- CELG and FB went down in value from Thursday to Friday so rolling on Friday was the better choice in these cases
The results of this very brief analysis indicates a possibility that the choice between rolling a weekly on a Thursday or Friday may be dependent on the price movement of the stock from one day to the next. This needs to be explored in much greater detail with a broader array of stocks and a much longer time frame. If it does turn out to be the case then one might conclude that in a bull market environment rolling on Thursday would make more sense. In a bear market environment, rolling on Friday would be to our advantage. In a sideways moving market it would appear to be a toss-up and perhaps here we would simply wait for Friday so we can make an assessment for the following week based on the most up-to-date information.
This is the first article I have ever written that has no conclusion. Rather it asks a question as to whether overall market conditions can give us a slight advantage as to roll our weeklys on Thursday or Friday. Blue Collar Investors are always looking for an edge and perhaps there is one to be had in this Thursday-Friday dilemma.
Next live speaking engagement:
Tuesday, January 14th
6:30 – 8:30
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On January 17th, 2014 we will be raising subscription rates for both monthly and annual memberships. Current members will be grandfathered in to the current lower rates and need to take no action to retain this lower fee schedule. All new members who subscribe prior to January 17th will also be grandfathered in to the lower rates. Thanks for the positive feedback we have received for the new and enhanced version of our Premium Stock reports. Link to subscribe:
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2013 was the 5th consecutive calendar year with positive returns for our stock markets. The S&P 500 rose by 32.4%, including dividends. The economic reports leading into the 2014 year were also encouraging:
- According to the Commerce Department, construction spending was up 1% in November, better than the 0.6% predicted by analysts and up from the revised October reading of 0.9%
- The Institute of Supply Management’s (ISM) manufacturing index came in @ 57.0 as was anticipated. This was the second best reading of the year and reflected expansion for the 7th consecutive month as the overall economy expanded for the 55th month in a row
- New orders came in at 64.2%, the highest level since April, 2010 and the manufacturing employment reading @ 56.9%, the highest since June, 2011
- The Conference Board’s consumer confidence index increased to 78.1 in December from 72.0 in November, after 3 straight monthly declines which were related to the partial government shutdown (don’t get me started!)
- Initial jobless claims for the week ending December 28th came in @ 339,000 below the 358,000 expected
For the week, the S&P 500 declined by 0.5%
IBD: Confirmed uptrend
BCI: This site continues to remain bullish favoring out-of-the-money strikes 2-to-1
Special thanks from our BCI team for making 2013 such a spectacular year and we look forward to working together to make 2014 even better.
Alan ([email protected])