We can leverage our knowledge of cash-secured puts to take advantage of common scenarios. In this article, we will detail how to take advantage of a disappointing earnings report from a stellar blue-chip company. On 7/25/2023, MSFT reported earnings and issued guidance that fell short of market consensus. Share price declined by more than $15.00 per-share. Did MSFT suddenly become a company we would want no part of? Of course not. Will share price decline even further or will it recover? I would lean towards the latter but no guarantees.
Rationale for selling weekly cash-secured puts (CSPs) after a disappointing chip earnings report
- Using out-of-the-money CSPs will hedge against further share price decline
- By selling weekly puts, our annualized returns will be greater than using longer dated options
- Significant annualized returns are probable
- Favor companies that we would otherwise not minding including in our stock portfolios
MSFT: Year-to-date chart through 7/28/2023
Note that MSFT was outperforming the S&P 500 for over 6 months and continued to do so even after the 7/25/2023 earnings release.
Broker screenshot showing sale of the 7/28/2023 $325.00 put for $1.03 per share
MSFT: 3-day calculations
- The BCI Trade Management Calculator shows a 3-day return of 0.32% (brown cell)
- The spreadsheet shows an annualized return of 38.68% but that stat is exaggerated because it includes weekend days which we can’t take advantage of using weekly options
- The more accurate annualized return is 17%, still significant
- If the put option is allowed is exercise, MSFT would be purchased at a breakeven price point of $323.97 (yellow cell), a discount of 3.17% (purple cell) from trade entry
Mastering all aspects of option-selling allows us to take advantage of a myriad of scenarios that come up all the time. One such event is a disappointing earnings report from an elite-performing blue-chip company.
Covered Call Writing: A Streamlined Approach
How to consistently beat the market using our CEO Strategy
Combining Exchange-Traded Funds with Stock Options
This book Is written for investors seeking a low-risk approach to generating cash flow in a user-friendly and time efficient manner. It utilizes covered call writing and then tailors the strategy to achieve the following goals:
- Sell options to lower our cost-basis
- Generate weekly or monthly cash flow with reduced but still significant initial percent returns
- Reduce the database of underlying securities available from 8500 to 11
- Reduce the number of exit strategy considerations from 14 to 4
- Beat the market on a consistent basis
- Reduce portfolio volatility
This book provides a roadmap as how to accomplish these objectives. The “how”, the “why” and the “when” is addressed for every aspect of each trade. Chapters 9 through 20, show every trade the author executed for each monthly contract in 2022. Screenshots taken from the Scwab.com platform are archived in each chapter.
Here’s what you will not find in this book:
- A stock called “XYZ”
- Hypothetical trades
- Computer generated trades
- Unrealistic promises
- Only winning trades
Join us in this 1-year journey using our CEO Strategy, a streamlined approach to covered call writing.
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 share some of these testimonials in our blog articles. We will never use a last name unless given permission:
Thank you, I really like your service. I do well when I stick to your guidelines. I recommend you to all my friends.
1. BCI-Only Webinar: Portfolio Overwriting
Thursday January 11, 2024
8 PM ET – 9:30 PM ET
Registration link available on 12/28/2023
Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks
Increasing profits and avoiding tax issues
Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”. Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.
- Brief review of covered call writing
- Option basics
- What is an option-chain?
- Option selection
- Calculating covered call returns: Real-Life examples
- Portfolio overwriting defined
- Pros and cons of portfolio overwriting
- Why early exercise is so rare
- Rolling options
- Role of dividends
- Locating ex-dividend dates
- How to avoid early exercise
- Real-life examples with calculations
- BCI Portfolio Overwriting Calculator
- BCI Trade Management Calculator
Registration link to follow on 12/28/2023.
2. Long Island Stock Traders Meetup Group (private investment club- Part I)
Thursday February 15, 2024
7:30 PM ET – 9:00 PM ET.
Club members only.
3. Las Vegas Money Show & Stock Traders Live In-Person Event
February 22 & 23, 2024
Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST
The PCP (put-call-put or “wheel”) Strategy
Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach
4. Long Island Stock Traders Meetup Group (private investment club- Part II)
Thursday March 14, 2024
7:30 PM ET – 9 PM ET
Club members only