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:
BCI Premium Stock Report
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
Price Chart of DECK on 10/20/2022
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)
Discussion
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
- Volume
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.
Click here for a link to this video
Click here for information on the BCI 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.
Verified Purchase
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.
D.B.
Upcoming events
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
April 18th
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
- Q&A
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.
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Hi Alan,
As I was getting to know and vet the BCI a few months back, I thought I remember seeing something in an older video or similar.
That something was a statement in a periodic report (weekly, if I recall correctly).
That statement had to do with what percentage of your portfolio(s) were in cash and the rest in securities/covered calls etc.
Again, I may not be remembering correctly, but was this -in cash/in securities- recommendation something you did at one time?
If so, curious of why the change to no longer do so.
Thanks again for all you and your team do for the CC community.
Best regards,
John
John,
I am almost always fully invested. Over the past 2 1/2 decades of using these low-risk option-selling strategies, there have been a handful of situations when I went into cash.
For example, in late September 2008, I went to 100% cash and returned to the market in March 2009. Other examples include moving to 50% pre-Brexit and 50% cash prior to the 2016 presidential election.
I’m sure I published my intentions in those corresponding premium member reports or in blog articles.
If I move to a % cash, I will always let our BCI community know my plan. These are not calls to actions, but rather sharing my objectives with the associated rationale.
Alan
Premium Members,
This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 03/24/23.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
https://www.youtube.com/user/BlueCollarInvestor
Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as the membership remains active.
Best,
Barry and The Blue Collar Investor Team
[email protected]
Hey guys,
I’m a little confused on the CEO Strategy. Do we hold and trade the recommended sector spyders from last week? (Xlu, xlp, xlk, xlc) or do we use the new week xlk xlc xlp xly xlv.
Of course these are for educational purposes only.
Brad
Brad,
The strategy is the same as our approach to traditional covered call writing and selling cash-secured puts. Once we enter the trades, we manage as detailed in my book, Covered Call Writing: A Streamlined Approach”, not by its removal from subsequent reports.
When we are ready to start the next cycle, we select ETFs from our most recent report.
Alan
Premium members:
This week’s 4-page report of top-performing ETFs has been uploaded to your premium site. The Select Sector SPDR section is now crafted to align with our streamlined (CEO) approach to covered call writing. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.
Premium member video link:
https://youtu.be/EXMO-KwZuJs
For your convenience, here is the link to login to the premium site:
https://www.thebluecollarinvestor.com/member/login.php
NOT A PREMIUM MEMBER? Check out this link:
https://www.thebluecollarinvestor.com/membership.shtml
Alan and the BCI team
Hey guys,
I’m in XLC,XLK,XLP,XLU. Excellent picks. The problem I’m seeing is that the calls that I sold are sky rocketing. I haven’t found the answer to this in the methods to save this in the CEO Portfolio.
Can you give me idea of what to do or where to read about it.
Thanks,
Brad
Brad,
Skyrocketing share prices is always a positive for us.
The CEO Strategy differs from the BCI”s traditional approach to covered call writing, in that fewer exit strategies are used. For traditional, when a stock appreciates significantly, the “mid-contract unwind” exit strategy is on the table. In the CEO Strategy, we only consider the 4 mentioned in my latest book.
When strictly adhering to the CEO strategy, if a strike is ITM at expiration, shares are allowed to be sold and a new portfolio is initiated on the Monday after expiration Friday.
Can we create a hybrid strategy somewhere between CEO & traditional? Yes, but for a true streamlined version, the CEO as detailed in my book is the way to go.
Alan
Brad,
What appears to be happening is a good thing. You are executing your trade according to your initial trade plan, and, if the trend continues, you will have succeeded for the month using the CEO Strategy.
Now…if your stock is assigned (called away) early in the month, that would be good for you! This would mean:
– Your trade plan was executed exactly as you planned it
– You hit your target return early in the month
– You are back in cash…in addition to the premium income you received from the initial trade setup
– You can now deploy that same cash in another trade
– Net/net…a well-executed trade
Best,
Barry
I’m going to read up on the mid contract unwind but i’ll probably adhere to the CEO Strategy. i’m interested in your thoughts about a hybrid though. thanks as always for the timely way you guys handle questions.
Brad
Brad,
In my 8th book, “Exit Strategies for Covered Call Writing and Selling Cash-Secured Puts”, 14 covered call writing exit strategy opportunities are detailed with real-life examples.
In our streamlined approach to covered call writing using the CEO Strategy, that number is reduced to 4.
I believe that most investors will benefit from both and should make a decision based on time available to dedicate to the process.
There is also nothing wrong with using both if the resources are available for multiple portfolios. I dedicate multiple portfolios to options with calls and puts, weekly and monthly expirations, traditional and ultra-low risk objectives. Everything I write about I personally use in my accounts.
Now, a hybrid approach is possible, but I’d recommend starting with the CEO Strategy as detailed in my 9th book, and tweak down the road if desired.
Alan