The most well-known form of cryptocurrency is Bitcoin. I am frequently asked about the use of crypto with our covered call and cash-secured put trades. In this article, a 1-week cash-secured put trade is analyzed, using Bitcoin, to construct a low-risk, high potential return trade. A real-life example with iShares Bitcoin Trust (Nasdaq: IBIT) is presented.
What is IBIT?
This is an exchange-traded fund (ETF). The shares are intended to constitute a simple means of making an investment similar to an investment in bitcoin rather than by acquiring, holding and trading bitcoin directly on a peer-to-peer or other basis or via a digital asset exchange. Since the implied volatility of this security is robust, there is flexibility that allows us to craft low-risk (not no-risk) trades that still offer significant initial time-value returns.
1-week cash-secured put option chain on 2/10/2025, expiring 2/14/2025
- With IBIT trading at $55.00, the $50.00 OTM put strike (brown cell) has a bid price of $0.32 (yellow cell)
- Note that the option liquidity is favorable with 3170 contracts of open interest (red arrow)
- The implied volatility is robust (60%) (pink cell)
- The Delta shows a probability of expiring in-the-money of 14.4% (blue cell), making the probability of being subject to exercise at approximately 85.6%, a low-risk trade
Initial trade calculations using the BCI Trade Management Calculator (TMC)
- The spreadsheet shows a 5-day trade (red circle)
- Selling 5 contracts generated $160.00 in option premium (white cell)
- Cash required to secure the each put contract: $4968.00 (blue cell)
- The breakeven price point is $49.68 (yellow cell)
- The initial 5-day time-value return is 0.64%, 47.02% annualized (brown cells)
- If the price of IBIT drops below the OTM $50.00 put strike, and no exit strategy intervention is executed, shares will be purchased at the breakeven price point of $49.68, which represents a 9.67% discount from the price when the trade was initiated (purple cell)
Discussion
Bitcoin can be implemented in our covered call writing and cash-secured put trades while still aligning with our goals of cash preservation and low-risk, significant initial returns criteria. We must bear in mind that these are low risk, not no risk trades and should always be prepared to act when our exit strategy arsenal opportunities present.
Alan Ellman’s Complete Encyclopedia for Covered Call Writing- Classic Edition: Softcover
B
It took me four years to complete but here is the book you have been asking for. My goal when I started this project was to create the most comprehensive book ever written on the subject of covered call writing and gear it to the average retail investor, The Blue Collar Investor. I hope you feel that I have achieved my mission.
This book contains SOME of the information found in my first two books, updated information (like the new options symbology) and subjects taken from over 100 journal articles published since 2007. It contains all the basic and advanced material you need to know to truly master this great strategy. It also addresses the questions you have sent to me over the years on subjects peripherally related to covered call writing like the use of cash-secured puts, for example.
Over 500 pages packed with solid information, no useless filler material
151 charts and graphs most of which are in color for better visualization
Chapter outlines to summarize the material located in each chapter
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 publish several of these testimonials in our blog articles. We will never use a last name unless given permission:
Hello Alan.
I just wanted to say thank you to you and team for the presentation this evening. I think you effectively shared what is clearly a tremendous amount of knowledge garnered through many years of practice – as you were able to explain the trades in a logical and succinct manner, without a significant amount of industry language that can be intimidating to someone new to the business. Much appreciated!
Have a great evening!
Samantha
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Setting Up Option Portfolios Using Stock Selection, Diversification, Cash Allocation and Calculations
Analysis of 6 covered call writing trades
Achieving the highest possible returns is a goal of every option trader. This requires a structured system based on sound fundamental, technical and common-sense principles. This presentation will analyze the critical steps starting with selection of the underlying securities, diversity of stocks and their industries and determining the amount of cash to appropriate to each position.
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He’ll Alan and Barry,
Excellent video. Great lesson learned.
I study the three premium member reports you send out every week and month, and so I just used different ways to decide my trades.
This video really breaks down the steps necessary. Thank you.
I do have the use the TMC and find it very useful.
I do have a question. The scenario sounds very efficient if we start with a clean slate each month, but inevitably I end each month with left overs. ie this past month ended up with 2 couple of CC that just expired so I will have to sell CC.
So how to you combine this video strategy with and left over stocks?
Suggestion or advice please.
Thanks again
Ketan
Ketan,
Glad you liked the video and glad to help.
Here is the best way to manage these trades:
Original expiration cycle:
In the “Exit Strategy Adjustment” section, select “Allow Exercise” from the dropdown.
In column AJ- “Final Unsold Stock Price”, enter the price of the stock (ETF) at expiration.
Next expiration cycle:
Enter that same “Final Unsold Stock Price” as your cost-basis.
Following this path will ensure our trade calculations are 100% accurate.
Let me know if you need further explanation.
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 07/18/25.
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
Barry and The Blue Collar Investor Team
Alan,
I regularly read and enjoy your newsletters. In this one I believe there is a mistake. You say in the Bitcoin example that the premium collected is nearly $5k (blue cell) when it is actually $160. I think the blue cell is perhaps the margin required.
Respectfully submitted,
Andrew
Andrew,
I’m happy to clarify.
The spreadsheet is correct. The $4968.00 in the blue cell reflects the cash required to secure the 5 put contracts (put strike – put premium x 500).
The $160.00 in premium collected is located in the white cell in the bottom right of the spreadsheet image.
Alan
Hi Alan
I have watched your videos again and still can’t get my head round what your earnings rule is and how to apply it.
Say I buy stocks and sell a weekly covered call and the covered call expires out of the money.
If there is an earnings report in the upcoming week, then according to your rule, do I only refrain from selling a call and keep the shares, or do I sell the shares too? I am assuming the former if I believe the shares still offer solid upside, but if so, I don’t quite understand what the danger is with selling the covered call – if the shares spike up, then at worst I cap the upside, and if the share price heads down, the short call has helped my overall position.
I had understood your main reason for avoiding the earnings report was downside risk, and am confused now about the rule.
Hope you can help.
Many thanks!
Mabel
Maybel,
I’m happy to clarify.
The rule is to always avoid having an option in place if there is an upcoming earnings report because ERs represent risk and we are implementing low-risk strategies. As a recent example, look what happened to NFLX on Friday.
For most of our traditional covered call writing portfolios, these stocks will not remain in our portfolios until the ER passes. Once the report passes, we can then enter our covered call or put trades if we are still bullish on the stock.
Are there exceptions to this rule? Yes, in rare situations when a stock has had a long history of earnings “beats”, we may decide to hold that stock through the ER and then write a covered call after the post-earnings volatility subsides. This way, we are not capping the upside when a stock historically has had earnings beats.
Another exception is if that stock is part of our long-term buy-and-hold portfolio and selling the shares may result in negative capital gains consequences. In this case, place the covered call after the report passes.
If we did have a covered call in place when there is a “miss” or with concerning “guidance”, the premium may pale in comparison to the share loss as in the case of NFLX.
Bottom line: We rarely hold a stock through an earnings report when using low-risk option strategies.
Alan
Premium Members,
There was a typo in the ER date for GE. It should read October 28, 2025, not July 22, 2025.
Best,
Barry
Premium members:
This week’s 4-page report of top-performing ETFs, along with our sample trade of the week, 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.
We have also included a sample trade taken from one of our BCI watchlists.
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