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Tag Archives: time value
calculating covered call writing returns

Generating 2% – 4% in Bull Markets: How to Take Advantage of Out-Of-The-Money Strikes

The 3 required skills for covered call writing and selling cash-secured puts are stock selection, option selection and position management. This article will use real-life examples highlighting the first 2 of these skill sets in a bull market environment.   Article assumptions and guidelines Portfolio is set up in a bull market environment Target goals […]

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covered call writing exit strategies

Rolling Out-And-Up: Explaining the “Bought-Up” Value of our Stocks

One of our covered call writing exit strategies is rolling out-and-up. This involves buying back (buy-to-close) the current in-the-money option and selling the later-date higher strike price. For example, we may buy back the October $50.00 call option and then sell the November $55.00 call option. We would consider such action if the expiring strike […]

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covered call writing strike price selection

In-The-Money Call Strikes: Intrinsic Value Protects Time Value

Strike price selection is one of the 3 required skills for covered call writing and put-selling. When we sell in-the-money call options we are protecting our positions to the downside while still generating the time value initial profits we have established in our strategy goals. In return, we are relinquishing any opportunity to generate additional […]

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covered call writing calculations using the Ellman Calculator

Selecting Deep In-The-Money Strikes: A Real-Life Example

Option selection is the second required skill when selling call and put options. On 9/26/2017, George shared with me a trade he executed with Biogen, Inc. (BIIB). An in-the-money strike was sold and share price immediately accelerated. George was inquiring about how deep in-the-money (ITM) the strike prices should be set.   George’s initial trade […]

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managing covered call trades

Managing Winning Trades for High Implied Volatility Stocks

Covered call writing and cash-secured put-selling are conservative strategies geared to retail investors who have capital preservative as a key strategy requirement. When we use high implied volatility underlying securities the strategy will have a broader range of risk-reward exposure. This article was inspired by Randy P. who had outstanding results using Applied Optoelectronics Inc. […]

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covered call writing calculations

Why Option Buyers Pay More for In-The-Money Strikes

When we sell an in-the-money covered call, we are taking a defensive posture and using the intrinsic value component of the premium to protect the time value initial profit. As an example, let’s look at New Oriental Education (NYSE: EDU) on April 7, 2017: EDU priced at $61.50 $60.00 (ITM) call priced at $3.55 Expiration […]

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Rolling Out-and-Up After Understanding the Math

Elite covered call writers understand the importance of position management in maximizing returns. As a result, I receive a significant number of inquiries regarding exit strategy execution. This article will highlight one such question I received from John which has two components to it. The main item relates to rolling-out-and-up, a frequently-used exit strategy in […]

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covered call writing calculations

Calculation Rules: Making Sense Of A Trade That Makes No Sense

Understanding option calculations is a necessary skill to become an elite covered call writer. The Ellman Calculator will do all the legwork but accurate and meaningful results are dependent on appropriate inputs. To highlight this point, let’s look at a real-life trade sent to me by Catherine who trades on the Toronto Stock Exchange:   […]

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The Relationship Between Delta and the Time Value of our Options

Covered call writers and put-sellers are always looking for an edge. Some may wonder which option Delta would make the best option-selling candidate. Intuitively or from experience we know that at-the-money strikes (Deltas near 0.50) generate the highest initial returns. I’ve stated that over-and-over again in my books and DVDs. Can this be demonstrated mathematically […]

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implied volatility and option pricing

Implied Volatility: General Market Conditions That Make Option Values Move Up Or Down

Option trading basics teaches us that selling call and put options is actually selling time value. Time value consists mainly of time to expiration stats and the implied volatility (IV) of the underlying security. Since most of us are selling monthly options, the main distinguishing factor in our option prices is the implied volatility…we are […]

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