The main goal of covered call writing is to generate option premium cash flow. Many investors also seek to develop dividend income in addition to the option premium revenue. One security that presents a unique scenario is iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT). This exchange-traded fund produces dividend income twelve times a year with […]
Combining In-The-Money Strikes and Stock Dividends to Provide Protection in Bear Markets + Holiday Discounts
When establishing our covered call writing trades, we must factor in current market conditions to either add protection in bear and volatile environments or to take advantage of normal to bull market scenarios. On May 17, 2019, Mauricio sent me a diagrammatic strategy proposal that would lower the breakeven using an in-the-money (ITM) strike as […]
Early Exercise Due to Dividend Capture: Theoretical and Practical Applications
When we write a covered call option we are obligated to sell our shares at any time from the option sale to contract expiration if the option buyer decides to take possession of our shares. This is because we are dealing with American Style options. European Style options (apply mainly to indexes, not stocks) can […]
Is There Less Risk Using Deep In-The-Money Long Calls versus Covered Call Writing?
“There is less risk using deep in-the-money (ITM) long calls than buying stock and selling the corresponding short calls”. That is the case John made to me when I received his email in January 2018. As an example, John used a $100.00 stock and a call premium of $9.00. The basis of his theory was […]
American Depository Receipts and Special 1-Time Cash Dividends/ Discount Coupons for New Book & Calculators
When viewing option chains while crafting our covered call writing portfolios, from time-to-time we will see unusual strike prices. These anomalies are usually associated with various corporate events that result in option contract adjustments. Such events include stock splits, mergers and acquisitions and the one highlighted in this article, special 1-time cash dividends. In July […]
Combining Dividend Capture with Covered Call Writing: Pros and Cons
Why not use covered call writing with only dividend-bearing stocks to generate three income streams; option premium, share appreciation to the (out-of-the-money) call strike plus the dividend itself? This article will explore the pros and cons of this approach to covered call writing. Strategy theory We screen for stocks that have ex-dividend dates (also […]
Arbitrage: Part II
In part I of this arbitrage series we defined arbitrage as the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists because of […]
Should Ex-Dividend Dates Be Treated the Same as Earnings Report Dates?
Covered call writers and put-sellers must be aware of earnings report dates and ex-dividend dates but for different reasons. A golden rule in the BCI methodology is never to sell an option if there is and earnings report date prior to contract expiration. In July 2017, Terry sent me an email asking if ex-dividend dates […]
Executing Trades Based on Ex-Dividend Dates
Early assignment of our covered call positions is rare but possible. When it does occur, it is frequently related to an ex-dividend date. These are dates that we must own the shares in order to be eligible to receive the dividend on the distribution date. Premium members can access ex-dates of the eligible stocks in […]
Why Would a Call Buyer Exercise, Rather than Sell, an In-The-Money Call Option?
When we write a covered call, there is a trader or market-maker buying that call on the other side of the trade. We know that as expiration approaches, the time value of options tends to approach zero (Theta effect). With that in mind I received an email from Marcos in early May 2017 astutely asking […]
Podcast
- 29. How to Structure a Poor Man's Covered Call Trade
- 28. In the Money Covered Calls to Protect in Bear Markets
- 27. Using Mean Analyst rating MAR in the Stock Screening Process
- 26. Selling Cash Secured Puts to Lower Cost Basis
- 25. “Hitting a Double” with Procter & Gamble Covered Call Writing Exit Strategies
- 24. Using Covered Call Writing and Stock Dividends in Low Interest Rate Environments
- 23. Covered Call Writing with Weekly Options Portfolio Overwriting with Weeklys
- 22. A Covered Call Writing Alternative to Rolling Up in the Same Contract Month
- 21. When To Execute Our Option Selling Trades
- How to set up a covered call writing portfolio using stock selection, option & position management
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