Comments on: Rolling Weekly Options & Covered Call Writing https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/ Learn how to invest by selling stock options. Sat, 11 Jan 2014 00:28:19 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18111 Sat, 11 Jan 2014 00:28:19 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18111 In reply to Tom.

Tom,

I’ve made no secret of the fact that I, personally, am more comfortable with monthlys. But that’s how I’ve been trading covered calls for nearly 2 decades. I’ve also said that there are a lot of ways to make money in the markets and I certainly would not eliminate weeklys as one of them. As the pool of stocks with weeklys grows and as the liquidity increases and option spreads decrease, these products will become more attractive to investors. The dynamic of theta (time value erosion) defintiely plays a role in mastering this strategy and so does the management of positions, another concern I have.

This site will continue to provide information and dialogue regarding weeklys because our membership does have an interest and I thank you for participating in this conversation.

Alan

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By: Tom https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18110 Sat, 11 Jan 2014 00:18:37 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18110 Hello Alan,

I wanted to weigh in on this discussion about use of weekly options.

As your most recent article pointed out, the value of rolling forward on a Thursday or a Friday was based
more on the change in intrinsic value rather than the time value. I’m not sure what level of time value
weekly options have, but I suspect it is a lot smaller than for monthly options. If I understand your
overall concept of trading covered calls, the idea is that you want to invest in good companies that
have a positive price trend (over a month or two, since you are using the 11 day and 50 day trend
lines). And then you want to sell a call option to add some icing to the cake that is your expected
underlying long position. The call sale appears to be taking advantage of the time value of the option,
since you almost never sell the call after the first 3-5 days of the new month.

So, to work with weekly options, which are probably way more intrinsic value then time value basically
says you are working with a whole different set of parameters than what your training, books, etc. are
based on.

I wonder if the interesting experiment would be to look at weekly options and see what kind of time
value is in place and how it degrades over time and compare that to the time value degradation of
monthly options.

My bottom line: trading covered calls on monthly options seems to be investing with additional income
(since I assume the underlying long position is one you would have gotten into anyway for that month).
Trading weekly options seems a lot more like day-trading the very short-term price trends and
predicting the “black swans” to stay away from (such as earnings release on monthlies) are going to
be a lot harder.

Thanks for the interesting thought experiment.

Tom

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18079 Tue, 07 Jan 2014 12:44:27 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18079 Strike price selection and the Greeeks: Money Show interview:

http://www.moneyshow.com/video/video.asp?wid=9567&t=3&scode=031070

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18074 Mon, 06 Jan 2014 20:16:19 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18074 In reply to Ruth.

Ruth,

There are many ways to generate profits in the stock market. I have had success with monthlys for two decades now so that is my sweet spot. But interest in weeklys is growing and this site is about you, our members, and that is why we are providing information on this and other related products. Here are some points to consider with weeklys:

Positives:

• Annualized returns can be higher
• Can avoid exposure over weekends
• Can generate greater premium as earnings report dates are approached and trade up to the week before earnings

Negatives:

• The pool of stocks with weeklys is much smaller than those with monthlys
• Management is much more time-consuming as “rolling” possibilities come up every week
• Less time for exit strategy execution
• Quadruple the number and amount of commissions
• Lower option liquidity
• Wider bid-ask spreads

Many thanks to Steve and Tom for their interesting and valuable input into this discussion.

Alan

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By: Barry B https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18062 Mon, 06 Jan 2014 02:55:09 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18062 Premium Members:

This week’s Weekly Stock Screen And Watch List has been revised and uploaded to The Blue Collar Investor premium member site and is available in the “Reports” section.

There was a typo and the stock, SPR, appeared twice. The correct report now reads SPR and SLXP in place of the second erroneous SPR entry.

Look for the report dated 01-03-14-REVA.

Best,

Barry and the BCI Team

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By: Tom https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18061 Mon, 06 Jan 2014 00:13:18 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18061 In reply to Ruth.

The weekly trades generally give a higher ROO.

This week IBDs top weekly is DDD (3 D Sytems).
It gives the following premuim returns:

The stock closed at $96.42, so I look at the Strike of 97.
Jan Wk2, Premuim- $2,50/contract, with return of 2.59%
Jan Wk3, Premuim- $3.40/contract, with return of 3.52%
Jan Wk4, Premium- $4.61/contract, with return of 4.78%
Jan Wk5, Premium- $5.50/contract, with return of 5.70%

Looking at the weekly with a premium of 2.59% and multiply it by 4 gives a huge yield of 10.36% in one month. This makes one dream of becoming a millionaire before the year ends. However, most of the time you have to roll-over the contract which takes from your profit margin. Also the stock can go down which can be costly. And when as the last time you owned a stock that went up a dolar or so 4 weeks in a row.

In summary, I use a combination of weekly amd monthly contracts and have an 80% positive trade rate since July 2013. The trade profit is right around 14%.

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By: Herb https://www.thebluecollarinvestor.com/rolling-weekly-options-covered-call-writing/#comment-18060 Sun, 05 Jan 2014 23:39:55 +0000 http://www.thebluecollarinvestor.com/?p=9099#comment-18060 I have some, but not extensive experience with weekly covered calls. I have been trading them in place of monthly options for about three months. To simplify the ‘when to roll’ question I watch the extrinsic value, When that drops to .03 or lower I enter my order, targeting the next weekly strike with the largest extrinsic value, either up or down. Sometimes that happens early on Thursday morning, sometimes not until the last hour of trading on Friday.

I have also noticed a reluctance of the MM to take the closing trade. For example a quote price may suddenly change against me by .10 to .15 immediately after I enter my order, especially on lower volume equities. As I normally have the time I will wait for an hour or so but usually have to meet their bid, frequently at a still lower price. This past week I positioned my initial order .01 to .02 below the MM bid and they filled immediately. I don’t know if that caught him by surprise and electronically filled before the bid could be changed or if the order would have been filled anyhow.

My rationale for trading weekly covered calls is the ability to adjust positions on weekly intervals and realize higher premiums than normally available on the monthly series of the same underlying stock. Over the time period I have been doing this the increased premium has more than compensated for the increased trading costs. It will be interesting to see if these conditions hold for the future.

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