Covered call writing and selling cash-secured puts are low-risk option-selling strategies that lower our cost-basis and generate cash-flow as we seek to beat the market on a consistent basis. By integrating both strategies, we construct a multi-tiered option-selling strategy which will both generate significant cash-flow plus offer substantial downside protection. In our BCI community, we refer to this strategy as the Put-Call-Put or PCP strategy. Outside our community, it is sometimes referred to as the wheel strategy. This article will highlight how The PCP strategy can result in huge downside protection over a 2-month timeframe using T-Mobile US, Inc. (Nasdaq: TMUS).

 

What is the PCP strategy?

An out-of-the-money (OTM) cash-secured put is sold and, if exercised, we write an in-the-money (ITM) or out-of-the-money covered call. Here is a graphic representation of the strategy:

The Put-Call-Put (PCP) Strategy

 

The initial put sale on 4/7/2020 with TMUS trading at $86.09 (5-week return)

 

TMUS Put Option-Chain

 

The OTM $82.50 put strike shows a bid price of $2.91. This premium can probably be negotiated higher, leveraging the Show or Fill Rule, but we will use the published bid price.

 

Put leg of the PCP trade

TMUS: Initial Put Trade Calculations

  • Initial 5-week time-value return of 3.66%
  • If exercised, shares are purchased at a 7.55% discount
  • The breakeven price point is $79.59

 

Covered call leg of PCP trade

 

TMUS: OTM and ITM Covered Call Writing Calculations

 

  • The OTM covered call generated an initial 5-week return of 2.90% with an additional 3.70% of upside potential
  • The ITM covered call generated an initial 5-week time-value return of 2.80% with 2.60% downside protection of that time-value profit
  • The ITM call strike resulted in a 5.2% protection to the breakeven price point

 

Downside protection of steroids (12.75% over 2-months (7.55% + 5.2%)

 

TMUS: Total 5-Week Downside Protection

In this real-life example, the stock price would have to drop more than 12.75% over 2 months before a penny is lost.

 

Discussion

Covered call writing and selling cash-secured puts lower our cost-basis and provide protection to the downside. By combining the 2 strategies into the PCP strategy, we can create huge downside protection or downside protection on steroids.

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI teaemail 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 really do get a lot from your service. I have learned how to make measured moves and have tracked trades and balances and see where my previous performance has improved since I have incorporated using BCI. I am very grateful. And, believe me, I have spent $$$ on other services that did not impact my trading with noted positive results. Again, incredibly grateful.

Very Happy BCI User,

Michelle

 

Upcoming events

1. Mad Hedge Investor Summit

June 15th, 2022

12 PM ET – 1 PM ET

Covered Call Writing Dividend Stocks to Create a 3-Income Strategy

 Dr. Alan Ellman, President of The Blue Collar Investor Corp.

Barry Bergman, BCI Managing Director

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 Q&A during the entire webinar.

Registration link 

 

2.American Association of Individual Investors: Greensboro North Carolina Chapter

Saturday June 18, 2022

10 AM – 12 PM ET

The PCP (put-call-put or wheel) Strategy

Using both covered call writing and selling cash-secured in a multi-tiered low-risk option-selling strategy where we either generate cash-flow or buy a stock at a discount.

Zoom webinar for Chapter members

 

3. Money Show Orlando live event

October 30th – November 1st, 2022

OMNI ORLANDO RESORT AT CHAMPIONSGATE

Visit Alan, Barry and members of the BCI team at Booth # 415

Masters Class

Comprehensive Course on Selling Cash-Secured Puts

Detailed start-to-finish 6-part program

This presentation will provide all the information, with real-life examples, necessary to master the strategy of selling cash-secured puts. The program is divided into 6 sections:

  • Section I:
    • Option basics
  • Section II
    • Traditional put-selling
  • Section III
    • PCP (wheel) strategy
  • Section IV
    • Buy a stock at a discount instead of a limit order
  • Section V
    • Ultra-low-risk put/Delta strategy
  • Section VI
    • Ultra-low-risk put/Implied volatility strategy

This presentation was developed to benefit both beginner and experienced option traders and will provide all the information needed to initiate the strategy and elevate returns to the highest possible levels.

45-minute presentation

Covered Call Writing: Multiple Applications Based on Current Market Conditions

Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)

Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

  • Normal to bull markets
  • Bear and volatile markets
  • Low interest-rate environments

A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.

Registration link and more details to follow.

 

Alan speaking at a Money Show event

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Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

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