In our BCI methodology, we use a 3-pronged approach to screening for our covered call writing and put-selling portfolios:
- Fundamental analysis (sales & earnings
- Technical analysis (trend, volume and momentum)
- Common-sense principles (minimum trading volume, avoiding earnings reports among others)
This article will focus in on the technical analysis of DECK on 10/20/2022 and show why it was included in our premium member stock report from a technical perspective.
The 4 technical indicators used in the BCI methodology
Exponential moving averages: This is a trend following indicator which is similar to simple moving averages except that more weight is given to the most recent data. It reacts faster to recent price changes which aligns with our short time frames typically used in option selling. We use 20-day and 100-day exponential moving averages.
MACD histogram: A trend and momentum indicator that reflects the difference between 12-day and 26-day moving averages and then illustrates the MACD against its trigger line (9-day exponential moving average). The result is a bar graph that will shows a blue bar either above or below the “0” line.
Stochastic oscillator: A momentum indicator that measures the price of a security relative to a 14-day high-low range.
Volume: The # of trades in a security over a period of time and represented by vertical bars on a price chart. It confirms or questions the validity of the other indicators and can represent a negative volume divergence from the price chart.
Bold stocks in our premium member stock reports
Note that on 10/20/2022, DECK was published in bold in our most recent stock report of eligible option trading candidates. This means that DECK had all-bullish signals at that point in time:
The red arrow of this partial screenshot shows that DECK was in bold in the report indicating that all technical indicators were bullish at that point in time.
Price chart of DECK on 10/20/2022 showing the 4 technical indicators
Note the following:
- Exponential moving averages show a bullish, uptrending chart pattern with the shorter-term moving average (blue arrow) above the longer-term (red arrow). Also, there was a bullish moving average crossover at the end of July (orange arrow)
- MACD histogram shows the blue bars above the “0” line (green arrow)
- Stochastic oscillator: The chart shows an uptrending indicator, currently holding above the 80% (purple arrow)
- Volume: Volume is strong, confirming the other indicators (red circled area)
When screening securities for short-term option trading, we should never hang our hats on 1 or 2 indicators or resources. In the BCI methodology, we use a 3-pronged approach to stock screening and technical analysis is 1 of those screens. Inherent in the technical analysis segment of our screening, we use 4 technical indicators:
- Exponential moving averages
- MACD histogram
- Stochastic oscillator
A bullish chart pattern like this one for DECK not only assists in grading it as eligible for option selling but also helps guide us to how aggressive we decide to be regarding strike selection.
Premium Member Benefits Video
This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here.
For video explanation, click here.
New ETF video
This week, we updated our video explanation of our premium member weekly ETF Report. This report can now be used to implement our recently released streamlined approach to covered call writing, the CEO Strategy.
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:
Testimonial on Amazon.com for The Complete Encyclopedia for Covered Call Writing:
5.0 out of 5 stars Terrific resource.
Can take the beginner toward an intermediate to advanced process of covered calls and option investing. I have many books on investing, some with quite complex methodologies. This can definitely take you where you need to be to maximize potential profits with a step by step, illustrative manual. I am pouring through this, affirming much that I already know as well as advancing my education in this process. Readable…concise language. Highly recommend.
To request a private webinar for your investment club, hosted by Alan & Barry: [email protected]
1. Money, Markets, & Monetary Policy Virtual Expo
April 11th, 2023
2 PM – 4 PM ET
Master Class (paid event to The Money Show)
In depth presentation on selling cash-secured puts
Registration link to follow.
2. Wealth365 Summit
10 AM – 11 AM ET
Covered Call Writing Dividend Stocks to Create a 3-Income Strategy
Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash-flow. By mastering the skill of strike price selection and adding dividend distributions, a potential 3-income strategy can be crafted with a goal of beating the market on a consistent basis.
Bonus topic: An introduction to the BCI streamlined approach to covered call writing creating a more user-friendly and time-efficient path to this low-risk option-selling program.
Topics covered in this webinar include:
- Strategy analysis
- Option basics
- What is covered call writing?
- Dividend distribution
- Stock selection
- Option selection
- Trade management
Real-life examples will be highlighted with Dow 30 stocks using option-chains and calculation spreadsheets.
Attendees will have the opportunity to participate in written Q&A during the entire webinar.
3. Your Mid-Year Portfolio Review Virtual Expo
June 27th – 29th, 2023
Specific time, date, topic & description and registration link to follow.