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Using the BCI Expected Price Movement Calculator to Sell Weekly Cash-Secured Puts

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When selling cash-secured puts, a common strategy goal is to avoid exercise and having shares put to us. This means selling out-of-the-money (OTM) strikes that have a low probability of exercise or expiring in-the-money (ITM) or with intrinsic-value. One way to quantify an expected trading range of a security is to incorporate its implied volatility (IV). IV stats are based on 1 standard deviation and an annual price movement. There needs to be an adjustment formula to generate a trading range for a specific contract expiration. This article will utilize a real-life example with Crocs, Inc. (Nasdaq: CROX) to establish a trading range and select and calculate initial returns for a weekly put option sale.

CROX on the BCI Premium Stock report on 7/21/2023

  • Weekly options are available (brown cell)
  • The next earnings report is on 8/3/2023 (yellow cell)
  • The at-the-money (ATM) IV is 39.7 (purple cell)

CROX projected trading range between 7/21/2023 and 7/28/2023 using the BCI Expected Price Movement Calculator (available for free to BCI premium members and for sale in the BCI store.)

  • After entering data from the BCI Premium Stock Report into the white cells, calculations appear in the yellow cells
  • The low end of the range is $117.85 (our target strike price)
  • Based on a standard deviation bell curve, the probability of success (avoiding exercise) is 84%
  • Initial calculations must meet our pre-stated initial time-value return goal range

CROX put option-chain on 7/21/2023

  • The $118.00 put strike aligns with our $117.85 strike price
  • The option-chain shows a bid price of $3.10
  • Expecting high initial returns due to the high IV (39.70%)

CROX initial trade calculations using the BCI Trade Management Calculator

  • The initial 8-day time-value return is 2.70%, 123.10% annualized (brown cells)
  • The breakeven price point is $114.90 (yellow cell, red arrow)
  • The discounted purchased price, if exercised is $114.90 or a discount of 8.45% (purple cell)

Discussion

Weekly put options can be sold, generating significant annualized returns, while still crafting high probability of success trades using IV. This can be applied to longer-dated options as well. The BCI Expected Price Movement and Trade Management Calculators will be extremely helpful in crafting and calculating these trades.



Stock Repair Calculator

What is the stock repair strategy?
  • Own shares at a price higher than current market value (unrealized loss)
  • Willing to forego potential profit in exchange for lowering the breakeven price point
  • Not willing to add additional funds to the current losing position
  • Instead of buying shares at the lower price to “average down”, an at-the-money (near-the-money) call option is purchased and funded by selling 2 out-of-the-money call options
  • 2 long positions (stock and ATM or NTM call)
  • 2 short positions (OTM calls covered by long positions)
  • This action will lower the breakeven price point
  • The strategy does not protect against additional downside loss
  • The strategy does cap the upside

Click here to learn more and order.


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:

Hi Alan,

Thank you very much for the presentation. I will keep in touch.

Maybe sometime in the 2nd part of 2024 will be good for another presentation on Covered Calls.

Best Regards,

Stephanie,

President of the AAII Orange County Chapter

Upcoming events

1. BCI-Only Webinar: Portfolio Overwriting

Thursday January 11, 2024

8 PM ET – 9:30 PM ET

Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks

Increasing profits and avoiding tax issues

Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.  Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.

Topics discussed

  • Brief review of covered call writing
  • Option basics
  • What is an option-chain?
  • Option selection
  • Calculating covered call returns: Real-Life examples
  • Portfolio overwriting defined
  • Pros and cons of portfolio overwriting
  • Why early exercise is so rare
  • Rolling options
  • Role of dividends
  • Locating ex-dividend dates
  • How to avoid early exercise
  • Real-life examples with calculations
  • BCI Portfolio Overwriting Calculator
  • BCI Trade Management Calculator
  • Summary

Registration link to follow.

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

Thursday February 15, 2024

7:30 PM ET – 9:00 PM ET.

Club members only.

3. Las Vegas Money Show & Stock Traders Live In-Person Event

February 22 & 23, 2024

Paris Hotel

Thursday, February 22, 2024, at 4:55 pm – 5:25 pm PST

The PCP (put-call-put or “wheel”) strategy

Friday, February 23, 2024, at 12:00 pm – 12:45 pm PST
Covered Call Writing: A Streamlined Approach

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

Thursday March 14, 2024

7:30 PM ET – 9 PM ET

Club members only

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

Begin additional segments text here (like testimonials, events, etc.)

14 Responses to “Using the BCI Expected Price Movement Calculator to Sell Weekly Cash-Secured Puts”

  1. Kalyan December 16, 2023 8:26 am #

    Alan,

    I am a premium member and i use TMC for monthly trades.

    When I buy back and keep stock what would be the cost basis for the stock in the next contract cycle?

    Please look below for a trade i used with the buy back keep stock exit strategy.

    Buy O on 11/13/2023 for 62.81
    Sell TO call for 64 strike on 11/13/2023 for .71 for 12/8 expiration
    OXY trading at 59.22 on 12/01/2023
    BTC 64 strike for .03

    No further option sales in the current contract month.

    I entered 59.22 as final unsold price and had a unrealized loss of 359.

    For the next contract month what should i enter as my cost basis for this stock.

    Thanks,
    Kalyan

    • Alan Ellman December 16, 2023 3:10 pm #

      Kalyan,

      In the screenshot below, I show how to enter your OXY trades into the TMC.

      Since the spreadsheet will update the option credit and share unrealized debit when shares are trading at $59.22, that is the price that should be entered into the next spreadsheet.

      As an aside, I suggest you review the trades to see if there were opportunities to roll-down to OTM strikes, since your plan was to retain shares of OXY. There probably were 1 or 2 opportunities.

      CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

      Alan

  2. Barry B December 16, 2023 11:08 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 12/15/23.

    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 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

  3. Howie December 17, 2023 10:00 am #

    Alan,

    I’m a new premium member and interested in the poor mans covered call. Which of our lists should I be looking at for stocks for this strategy?

    Thank you,
    Howie

    • Alan Ellman December 18, 2023 7:20 am #

      Howie,

      The Poor Man’s Covered Call strategy implies a long-term commitment. I would favor securities that have a history of positive sales and earnings growth and cash-rich, dividend-bearing companies.

      As a result, our Blue Chip (Dow 30) Reports are a good starting place. We can also look to ETFs that mirror a broad market benchmark (QQQ is 1 example but not necessarily a recommendation), so our ETF reports are also useful watchlists to consider.

      That said, be sure to read “Covered Call Writing Alternative Strategies” and watch our PMCC online video course to master all the moving parts of this strategy. It is NOT simply covered call writing, but cheaper.

      Alan

  4. Eric December 17, 2023 12:22 pm #

    Alan,

    When you sell weekly cash secured puts, what is your target % return when you set up your trades to start?

    Thank,
    Eric

    • Alan Ellman December 18, 2023 3:38 pm #

      Eric,

      Unless I am using one of our ultra-low-risk strategies (using Delta or implied volatility), I target 2% – 4% per-month or 1/2% – 1% per-week.

      These are guidelines based on my trading style and personal risk-tolerance and may or may not align with those of other investors.

      Alan

  5. Mike December 18, 2023 12:37 pm #

    Alan,

    In your January webinar on portfolio overwriting, will you be going over strike selection? This seems to be the most important part of the strategy.

    Thanks a lot,
    Mike

    • Alan Ellman December 19, 2023 7:12 am #

      Mike,

      Yes, in detail. We will also address position management, another critical aspect of portfolio overwriting.

      Alan

  6. Ilene December 20, 2023 9:12 am #

    Alan,

    I have been using the trade management calculator for several months and love it.

    One of my trades have the call strike very deep in the money and I’m thinking of closing both legs.

    Can you help me with this:I can’t find where to calculate the time value cost to close this trade. Please help!

    Thanks,
    Ilene

    • Alan Ellman December 20, 2023 12:41 pm #

      Ilene,

      Use the “Unwind Now” worksheet tab at the bottom of the TMC spreadsheet. In the screenshot below, use the arrows on the bottom left to scroll right-to-left (red arrows) and click on the Unwind Now tab (red oval) to access the worksheet.

      CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

      Alan

  7. Courtney December 20, 2023 3:37 pm #

    Hi Alan,

    Could you tell me again what parameters you recommend for how much extrinsic value I should pay for on the deep in the money call of a PMCC? I.e is there a ratio you like when comparing to how much monthly premium you’ll receive?

    Example:
    Stock $31
    Long call strike: 15
    Long call $18.50

    Monthly premium
    Strike 35
    Short call .90

    It was a pleasure meeting you at the money show!

    Thank you Alan

    • Alan Ellman December 21, 2023 7:04 am #

      Courtney,

      BCI Has published a “trade initialization formula” to help guide us to appropriate Poor Man’s Covered Call (PMCC) trades. This formula takes into consideration the 2 strikes, initial premium credit and cost of the long call. Inherent in these figures are the extrinsic values. Here is the formula:

      [(Difference between the 2 strikes) + (initial short call premium)] > Cost of LEAPS option

      Our PMCC Calculator has this formula inherent in tab #1, which guides if a trade is appropriate to enter.

      In the screenshot below, the spreadsheet shows a bold, red “YES” and a net credit of $2.40 per share should the trade be closed due to exponential share price acceleration. If the formula is not adhered to, the spreadsheet would show a “NO” and a net debit.

      CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

      Alan

  8. Alan Ellman December 20, 2023 5:02 pm #

    Premium members:

    This week’s 5-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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