A collar trade is a covered call trade with a protective put. Jim recently wrote to me asking about the efficacy of also selling an out-of-the-money put to help pay for the cost of the protective put. This article will analyze this series of trades to assess the pros and cons of adding that fourth […]
An Annualized Return of 5000% and Feeling Miserable: Interpreting Our Covered Call Trades
Whether we are using covered call writing, put-selling or any other investment strategy, investor interpretation of results is an interesting topic to analyze. Is the glass half-full or half-empty? On October 5th, 2018, Gene wrote me about two covered call positions he was holding and expressed deep concern over the status of those trades. This […]
Trade Management: A Real-Life Example with Brooks Automation, Inc. (NASDAQ: BRKS)
Once we enter our covered call writing trades, we immediately go into position management mode. In August, 2018, Mike generously shared with me a series of trades he executed using Brooks Automation, Inc and asked for my evaluation of his management of these trades. This article will detail and evaluate each aspect of the series […]
“Hitting a Double” Calculations with The Ellman Calculator
One of the BCI exit strategies that helps distinguish us from all other covered call writers is known as “hitting a double” We use this position management technique when share value declines such that option value drops to 20% (in the first half of a monthly contract) or 10% (in the second half of a […]
Understanding the “Paid-Up” Risk When Rolling Out-And-Up: A Real-Life Example with FIVE
One of our covered call writing exit strategies when the strike is in-the-money on expiration Friday is rolling out-and-up. This is when we buy back the near-month call (buy-to-close) and sell the next month’s higher strike. There are times when share appreciation has dramatically increased above the near-month strike price such that buying back the […]
Establishing Our Option-Selling Goals: Total Portfolio Versus Individual Stock Perspectives
When selling covered call and put options we must first establish our initial time value return goals. We also should factor in upside potential when writing out-of-the-money call options and downside protection of those time value returns in bear and volatile markets. Do we accomplish these parameters based on our total portfolio returns or on […]
Buying Low and Selling High Also Applies to Option-Selling
Covered call writers hold two positions. We are long (own) the stock and short (sold) the call option. It is intuitive to investors that it is to our advantage if the stock price accelerates or at least does not decline in value. There are five possible outcomes in the stock portion of our trade: Stock […]
Rolling Out-And-Up And Then Stock Price Declines
Rolling our covered call trades involves multiple months of trading statistics. The calculations may be deceiving initially but on deeper analysis, rolling our options can represent an invaluable trading tool which enhances our overall returns. Some of our members have expressed concern when rolling out-and-up because the cost-to-close our near-month in-the-money call deducts the intrinsic […]
Factors to Consider When Closing a Trade Early: A Real-Life Example with ATVI
Exit strategies for covered call writing includes closing a trade when share price rises above the original strike price sold. When formulating these decisions, we must factor in the cost-to-close as it relates to the opportunity to generate more profit. On November 8, 2017, Marion shared with me a trade with Activision Blizzard, Inc. (NASDAQ: […]
Evaluating the Success of our Covered Call Trades
Whenever a covered call trade results in a maximum return, it is a successful trade…period…end of story. To most, this statement appears nonsensical and self-evident. But I’m here to tell you that there are a lot of covered call writers that question that success. In late December 2017, Paul shared with me a series of […]
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The New Stock Market- Algorithmic and High Speed Trading
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Options That Expire Weekly and Conventional Expiration Cycles
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Why the 3% Guideline Applies to Puts but Not to Call Options
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Earnings Pre-Announcements Explained and Categorized
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Tax Implications of Writing Covered Calls against Long-Term Holdings
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