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Using The Ellman Calculator to Monitor “Hitting a Double” Results

One of our BCI covered call writing exit strategies is titled “hitting a double” This opportunity arises when share price declines after a covered call position is opened, short calls are bought back using our 20%/10% guidelines and then the same option is re-sold when share price rises. This article will highlight how to use the multiple tab of The Ellman Calculator to update and monitor our positions when implementing this position management technique.

 

Chart pattern when “hitting a double”

 

covered call writing exit strategies

Classic V-Shaped Chart Pattern When “Hitting a Double”

 

Hypothetical “hitting a double” series of trades

  • Buy BCI at $48.00
  • Sell the $50.00 call for $2.00
  • Stock price declines such that the $50.00 call premium meets the 20% guideline (premium value declines to $0.40 or lower)
  • Share price rises such that the $50.00 call value rises to $1.00 (in this hypothetical)

 

Overview of trades

The cost basis of $48.00 remains the same throughout these trades, option credit/debit is moving in both directions and upside potential from $48.00 to the $50.00 strike remains constant at $2.00. With these facts in mind, we can monitor the trades by simply changing the option credit throughout the various legs of the trades. The option credit starts at $2.00, drops to $1.60 and then moves up to $2.60

 

The Ellman Calculator monitoring the “hitting a double” trades

 

covered call writing calculations

“Hitting a Double” Calculations

 

  • Brown field: Options returns move from 4.2% to 3.3% to 5.4% as options are sold, bought back and then re-sold
  • Yellow field: Upside potential remains constant at 4.2%
  • The stock side of the final trade will be determined by the price of the stock at contract expiration

The screenshot shows the trade adjustments on different lines. In real-life trading we can simply adjust the top line in the spreadsheet.

 

Discussion

The “hitting a double” exit strategy has 3 legs that can be monitored using the multiple tab of the Ellman Calculator by adjusting the net option credit during the life of the trade. Final results (realized or unrealized) will be calculated when stock price at expiration is known.

***For more information on covered call writing exit strategies:

Complete Encyclopedia for Covered Call Writing- classic edition: Pages 245 – 302

Complete Encyclopedia for Covered Call Writing- Volume 2: Pages 243 – 272

Exit strategy sections of DVD Programs

 

For a real-life example of “hitting a double”, click here.

 

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,

My name is Francesco, Italian national living in UAE, commercial airline pilot, 34 years old.

I have been following your blogs and videos for some time and I have been really impressed, thank you so much for your work! The feedback I have seen on BCI has been truly amazing!

It would be an honor to meet you some day!

Best regards,

Francesco

 

Upcoming events

-May 8th 

Alan will be hosting a free webinar for the Options Industry Council (OIC) on generating income from selling options. Click here to register for free.

-May 13th

All Stars of Options

Bally’s Hotel, Las Vegas

10 AM – 10:45 AM

How to Select the Best Options in Bull and Bear Markets

Free event

-May 14th

Las Vegas Money Show

Bally’s/ Paris Hotel

12:15 – 3:15

Master class encompassing covered call writing, put-selling and the stock repair strategy

This is a paid event hosted by The Money Show

***Alan will also be doing book-signing event at The Las Vegas Money Show

 

***Market tone data is now located on page 1 of our premium member stock reports.

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

9 Responses to “Using The Ellman Calculator to Monitor “Hitting a Double” Results”

  1. Ken April 20, 2019 2:34 am #

    How can I find out if a stock is standard or non standard?

    Thank you.

    Ken

  2. Barry B April 20, 2019 10:28 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 04/18/19.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them at The Blue Collar YouTube Channel. For your

    convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    Since we are in Earnings Season, be sure to read Alan’s article, “Constructing Your Covered Call Portfolio During Earnings Season”. You can access it at:

    https://www.thebluecollarinvestor.com/constructing-your-covered-call-portfolio-during-earnings-season/

    Best,

    Barry and The Blue Collar Investor Team

  3. Sunny April 22, 2019 4:09 pm #

    Alan,

    When you choose new candidates for option selling do you also use stocks that are marked red in Premium report (PASSED PREVIOUS WEEKS & FAILED CURRENT WEEK) or you limit your selection exclusively to stocks that passed screens during the current week?

    Sunny

    • Alan Ellman April 22, 2019 6:34 pm #

      Sunny,

      We use the stocks in the white cells. These are the strongest candidates at the time the report was constructed. This is the reason we update stock and ETF reports weekly…to have the most up-to-date information. If we already own a stock in the red cells, we manage with our exit strategies and don’t automatically sell them because they moved to a lower level in the report.

      Alan

  4. Harry April 23, 2019 10:14 am #

    Alan

    I contacted you awhile back because Fidelity wouldn’t let me do covered calls and asked you what I could do about it. I had my IRA in the right account to trade stocks or options like you mentioned. I decided to switch back to TDAmeritrade. When I signed up I checked the box to do options and just selected covered call writing. They ok’d it right away and a few days later I received a letter stating I could do covered calls. I hadn’t even put any money into my accounts yet !!

    You asked me to let you know the out come, so this is the reason for the email. I would just like to say thanks for giving me advice. I will paper trade on Think or Swim until I can enter my trades quickly and accurately. I am glad I purchased your videos and books. They really make it easy to understand covered calls and adjusting my covered calls to how the price moves until expiration date. I receive your weekly Premium report also. It is a time saver.

    Thank You
    Harry

    • Alan Ellman April 23, 2019 12:18 pm #

      Harry,

      Glad to help and pleased to have you as a new member of our BCI community.

      Alan

  5. joanna April 23, 2019 4:43 pm #

    The rule regarding not writing covered calls during earnings reports is in regards to only that particular company, correct? Like, I don’t have to put all covered call writing on hold from now until – say -somewhere in the middle of May? The trick is to find great uptrending companies who do not have a report coming out during the life of the call written, right?

    • Alan Ellman April 23, 2019 4:56 pm #

      Joanna,

      Correct. The rule applies on a stock-by-stock basis. There will always be stocks not reporting in a particular contract month or even ETFs we can use to populate our portfolios even in the heart of earnings season. We can also use stocks that report in the first week of as contract, after that report is published.

      Alan

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