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Using Technical Analysis to Enhance Our Covered Call Writing and Cash-Secured Put Trades

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In our BCI methodology, there is a 3-pronged approach to our stock screening process:

  • Fundamental analysis (sales & earnings growth)
  • Common-sense principles (minimum trading volume, avoiding earnings reports & more)
  • Technical analysis (reading a price chart)

This article will focus on technical analysis and will utilize real-life examples with bullish, mixed and bearish price charts.

Technical indicators used in the BCI screening process (feel free to use your favorites)

  • Exponential moving averages (measures trend)
  • MACD histogram (measures trend & momentum)
  • Stochastic oscillator (measures momentum)

Bullish Price Chart: Dorian LPG Ltd. (NYSE: LPG)

  • Exponential moving averages (top) are ascending, with the shorter-term 20-day EMA above the longer-term 100-day EMA
  • MACD histogram (blue bars) are above the zero line and ascending
  • Stochastic oscillator (black line) is ascending
  • Volume (green circle) is not weakening
  • This is a strong security from a technical perspective and would consider it for our portfolios and favor more bullish positions

Mixed Price Chart: Dorian LPG Ltd. (NYSE: LPG)

  • Exponential moving averages (top) are ascending, with the shorter-term 20-day EMA above the longer-term 100-day EMA. Price bars are beginning to decline (#1)
  • MACD histogram (blue bars) are above the zero line but descending (#2)
  • Stochastic oscillator (black line) is starting to turn down (#3)
  • Volume (green circle) is not weakening, confirming the other indicators
  • This is a mixed technical mosaic and would not eliminate the stock from consideration, but would tend to guide us to favor defensive positions (in-the-money call strikes, for example)

Bearish Price Chart: Everest Group, Ltd (NYSE: EG)

  • Exponential moving averages (top) are flattening and turning down, with the price bars moving below the 20-day exponential moving average (top purple arrow)
  • MACD histogram (blue bars) have moved below the zero line
  • Stochastic oscillator (black line) is descending significantly
  • Volume (green circle) is not weakening, confirming the other bearish indicators
  • This is a bearish technical mosaic and would eliminate the stock from consideration

Discussion

Technical analysis is one of our 3-pronged approach to stock screening. Bullish and mixed price charts are acceptable, but bearish price charts eliminate the security from consideration. We also use technical analysis to help guide us to strike price selection.

NOTE: BCI premium members do not have to do the technical analysis discussed in this article. Our team does that for you.



Selling Cash-Secured Puts Basic and Advanced Principles

Selling Cash-Secured Puts is a 6-part Video Series + downloadable workbook. All aspects of Put-Selling, including stock selection, option selection and position management. A huge section on exit strategies and a deeper dive into ultra-low risk approaches to selling cash-secured puts have been added to previous versions of this course. The Companion Workbook contains 111 all-color pages of all charts, graphs and slides. Download Table Of Contents (PDF)

This course contains 6- parts in the video course:

Section I: Option basics (definitions and foundational information)
Section II: Traditional put-selling (stock & option selection + position management)
Section III: PCP (wheel) strategy (adding covered calls to selling cash-secured puts)
Section IV: Buy a stock at a discount instead of a limit order (buy a stock at our target price or get paid not to buy the stock)
Section V: Ultra-low-risk put/Delta strategy (High probability, low-risk trades)
Section VI: Ultra-low-risk put/implied volatility strategy (High probability, low-risk trades)


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:

Alan,

I’m sure I speak for many others in the BCI community, when I say, “Please don’t ever retire”. I have always done well, but the BCI methodology and tools have increased my trade success rate and my knowledge of the market.

Let’s go 2024.

John

Upcoming events

1. Mad Hedge Investor Summit

Tuesday March 12, 2024

11 AM ET – 12 PM ET

Register here for free.

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.

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 chat box Q&A during the entire webinar.

A deeply discounted comprehensive package of educational products and tools will be offered in the final minutes of the webinar.

Register here for free.

2. Long Island Stock Traders Meetup Group (private investment club- Part II)

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

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3. BCI-Only Webinar

Thursday April 11, 2024

8 PM ET – 9:30 PM ET

Topic, description and free registration information to follow.

All questions related to covered call writing and cash-secured puts will be answered in real time after the webinar presentation.

4. Stock Traders Expo- live event in Orlando Florida

October 17 -20

Details to follow.

Alan speaking at a Money Show event********************************************************************************************************************

7 Responses to “Using Technical Analysis to Enhance Our Covered Call Writing and Cash-Secured Put Trades”

  1. Jon March 9, 2024 2:11 am #

    Alan,

    When setting up a collar trade, how do you determine the put strike?

    If your goal is 2-4% for a month for a covered call, what should it be if we add a put to the mix?

    Thanks a lot,
    Jon

  2. Alan Ellman March 9, 2024 5:50 am #

    Jon,

    Typically, when we set up a collar trade (covered call + a protective put), we use out-of-the-money calls and puts.

    The call strike (ceiling) is higher than current market value and the put strike (floor) is lower than current market value.

    An example would be a stock trading at $48.00 and we sell a $50.00 covered call and buy a $45.00 put.

    We seek a net credit when crafting our trades. If our goal is 2% – 4% per-month for a covered call trade, a reasonable goal for a collar trade would be 1% – 2% per-month for our initial time-value return goal range.

    Alan

  3. Barry B March 9, 2024 10:16 pm #

    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 03/08/24.

    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 Member’s pricing is locked 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

  4. Derek March 10, 2024 11:42 am #

    Hi Alan,

    Just wanted to say Hi and ask you a question.

    I purchased your BCI package with the year long premium membership, I am learning alot and going through all the Materials. Your course and materials are amazing. I am loving learning all about the covered call strategies.

    My question is this, You say to not do anything around earnings reports. Do you recommend selling stocks that have earnings reports coming up soon.

    I know with your premium membership you have stocks you pick with your system.

    Do you sell your stocks that you use every month for your covered calls and replace them with other stock that fit your criteria?

    Based on your system you don’t go long on any stocks when dealing with covered calls.

    Is the best way to use your system to pick 5 stocks every month from the ones you recommend then replace the ones not on the list the next month with ones on the list. Keep selling stocks each month that fall off the list.

    Hope this question makes sense.

    Thanks Again for putting together this great course and materials.

    Derek

    • Alan Ellman March 11, 2024 7:01 am #

      Derek,

      Glad to help:

      1. Generally, we do not own stocks through earnings reports due to the risk inherent in the market’s post-earnings announcements. However, in our BCI methodology, our guideline allows us to hold a stock through an earnings report, if we have confidence in that underlying security, and write the call after the report passes. I will take this path periodically, but most of the time, I do not incur the risk of an ER.

      2. If a stock is not eligible due to an upcoming ER or if it is “removed” from our stock report of eligible candidates, we select from the “white cells” in the most recent BCI Premium Member Stock Report. We can also use the ETF Reports and Blue Chip (Dow 30) Reports.

      3. The number of stocks we select is dependent on the cash available. As an example, if we have < $50k available, 5 stocks or 2-3 ETFs are okay for proper diversification. If we have > $100k available, we would opt for > 5 securities for even better diversification. We should also follow our cash allocation guidelines.

      4. If we use a stock or ETF from our watchlists, we manage those positions (through expiration) based on our exit strategy rules & guidelines and NOT if the stock is not on our eligible list the next report. At the end of the contract, we replace ineligible stocks with eligible securities from our latest reports.

      Keep up the good work.

      Alan

  5. Alan Ellman March 11, 2024 11:48 am #

    To our members,

    We are currently resolving technical issues with one of our email servers. You may not have received, or we may not have received emails that were, in fact, sent.

    Premium members … all new reports have been published on your member site, although you may not have received notification.

    We anticipate having this issue resolved shortly.

    Alan & the BCI team

  6. Alan Ellman March 13, 2024 5:17 pm #

    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

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