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BCI Rule: Never write a covered call or sell a cash-secured put if there is an upcoming earnings report prior to contract expiration. All other parameters in our BCI methodology are guidelines, giving the investor some flexibility within the parameters of the system.

Why are earnings reports risky?

  • May fall short of consensus estimates (average analyst forecast of company’s earnings and sales)
  • May give concerning guidance regarding future earnings and revenue stats
  • May not meet the whisper number, the topic of this article

What is the whisper number?

This is the unofficial earnings-per-share forecast of professional traders and fund managers on Wall Street that typically represent high-wealth clients. It may not be the same as consensus estimates. Have you ever seen a company report better-than-expected earnings and sales and offer positive guidance, yet decline in price after the report? I have … many times.

A real-life example with Super Micro Computer, Inc. (Nasdaq: SMCI)

  • Background:
    • Great run the first half of 2023, huge price growth
    • Well positioned in the AI space
    • Pre-announced good earnings in late July
    • For income traders, high volatility
    • Reasonable P/E … lower than the computer industry P/E (price/earnings ratio)
    • At least 8 analysts increased their rating and revenue estimates in the run-up…stock was a “Wall Street Darling”
    • SMCI has been on and off our BCI premium watchlist since 01/06/23 and failed the week before the earnings release
  • Price chart from 5/2/2023 – 8/9/2023
  • Note the following:
    • From May – beginning of August, SMCI increased in price by > 250%
    • SMCI reported earnings on 8/8/2023, after market closed
    • The next day (mid-day), SMCI declined by approximately $85.00 per-share or 24% … ouch!

What happened?

You guessed it. A great report that beat market consensus but missed the whisper number. Earnings reports are risky and conservative investors who sell options should be aware of this and trade accordingly. For me, I avoid earnings reports routinely. I learned this lesson years ago after getting hammered too often by disappointing reports.

Discussion

Conservative investors who sell options should strongly consider avoiding earnings reports. Missing consensus estimates concerning guidance and missing the whisper number can lead to substantial losses.



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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 love checking in and I have nothing but great things to say. The BCI method is the soundest conservative investing method I have ever found for covered call writing. Your knowledge (so much which is free) is a great service to all in the investing community. Out of respect I hope more people join because very few people ie: websites , YouTubers , etc.  offer real information without a catch. The average person can learn so much without a premium membership.

With that being said rough numbers:

January 2023 before I found BCI $2500 in premiums on covered call writing and stock appreciation.

Since then, I average over $8k a month, using the BCI methodology. That represents roughly 5-6% monthly return, probably more because not figuring some of the weekly contracts.

I wonder what would happen if I did this full time?

Thanks again,
John 

Upcoming events

1. BCI-Only Webinar: Portfolio Overwriting

Thursday January 11, 2024

8 PM ET – 9:30 PM ET

You can register here, now:

https://www.thebluecollarinvestor.com/event/bci-only-webinar-portfolio-overwriting/

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

You can register here, now:

https://www.thebluecollarinvestor.com/event/bci-only-webinar-portfolio-overwriting/

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*********************************************************************************************************************

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