How to Enter Our Rolling-Out Trades into Our Monthly Trading Logs

When we roll-out our covered call trades, we are actually combining 2 months of option premiums, the current month and the next contract cycle. This may create some confusion as how to enter these combination trades into our trading logs. As you will see, there is no perfect solution, but BCI has created guidelines that will represent a reasonable approach to this dilemma. My philosophy is that there is not always a perfect solution, but there is always a best solution.

 

Hypothetical trade

  • 12/27/2021: Buy 100 x BCI at $48.00
  • 12/27/2021: STO 1 x 1/21/2022 $50.00 call at $1.50
  • 1/21/2022: BCI trading at $52.00
  • 1/21/2022: BTC the 1/21/2022 $50.00 call at $2.05 ($2.00 intrinsic-value + $0.05 time-value)
  • 1/21/2022: STO the 2/18/2022 $50.00 call at $3.50
  • How to we calculate the current month results?
  • Where do we place the 2 option credits and 1 option debit?
  • What cost-basis do we use for the next month entry?

 

BCI guidelines for rolling trade entries: current contract month

The current month concludes with the final stock price as the in-the-money strike (ITM), $50.00, in this hypothetical (we generally roll strikes that are ITM), our contract obligation. This means we have maximized our trade as initially structured as shown in this screenshot:

Rolling-Out in First Contract Cycle

 

Using our BCI Trade Management Calculator, we determine our initial month final results.

In this hypothetical trade, a 1-month return of $350.00 or 7.29% (red arrows on bottom) was realized.

 

BCI guidelines for rolling trade entries: next contract month

At the time we roll the option, shares can be worth no more than our contract obligation to sell at $50.00, so we enter $50.00 as the price per-share. Since we are rolling-out, the strike is the same $50.00 but we enter the new contract expiration date, 2/18/2022, in this case. We then use the BTC and STO net option credit of $1.45 ($3.50 – $2.05) as our option $/Share entry. This results in a 2.9%, 1-month initial time-value return (red arrow).

Now, here is the (minor) flaw in this approach. We see downside protection of 0%, when, in fact, it is 3.8% ($2.00/$52.00) because the shares are, in fact, trading at $52.00 at the time of the roll.  If we entered $52.00, it would skew the initial time-value return which is a much more important stat than the downside protection. As I said, not a perfect world but the best world we can provide. Here is the screenshot for the next month calculations:

 

Roll-Out Entries in The Second Contract Cycle

 

Discussion

When rolling-out our covered call trades, we must break up our trade entries over the 2 contract cycles. This includes having rules and guidelines for:

  • Stock price entry
  • Final stock price
  • Dividing option credits and debits over 2 contract cycles

 

Next week’s article: How to Enter Our Rolling-Out-And-Up Trades into Our Monthly Trading Logs

 

Premium Member Benefits Video

This is a great time to join our premium member community with its stock screening and educational (over 200 videos) benefits. We offer more benefits than ever before. For information, click here.

For video explanation, click here.

 

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,

This is an incredibly thoughtful response. Thank you so much.

All of these bullet points are extremely helpful.

I can’t wait to dive into your encyclopedia for covered call writing!!

Thank you so much all you do!!!

You’re truly changing lives!!

Sincerely,

Cheryl & Ryan

 

Upcoming events

1.Mad Hedge Investor Summit

Thursday September 15th, 2022

12 PM ET – 1 PM ET

Register for free here

Analyzing a 1-Month Covered Call Writing Portfolio from Start-To-Finish

A real-life example with a $100k ETF Select Sector SPDR portfolio

Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash flow. This presentation will demonstrate how to implement this strategy using a database of only 11 exchange-traded funds for a 1-month option contract cycle. These are real-life trades taken directly from one of Dr. Ellman’s portfolios with screenshots verifying each trade. A final monthly contract result compared to the performance of the S&P 500 will be calculated.

Topics included in this webinar:

  • What are the Select Sector SPDRs?
  • How to establish a covered call writing portfolio
  • What is the role of diversification?
  • What is the role of cash allocation?
  • Calculating initial returns
  • Analyzing each trade in the monthly contract
  • Final results
  • Next steps

Registration for free here

 

2.Wealth365 Investor Summit

October 10th – 15th 2022

Using Both Covered Call Writing and Put-Selling to Generate Monthly Cash Flow

The PCP Strategy (Put-Call-Put or “wheel” strategy)

Hosted by:

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

Barry Bergman, BCI managing Director

Selling stock options is a proven way to lower our cost-basis and beat the market on a consistent basis. Two such low-risk strategies are covered call writing and selling cash-secured puts. This presentation will detail how to incorporate both strategies into one multi-tiered option-selling strategy where we either generate cash-flow or buy a stock at a discount. I refer to this as the Put-Call-Put (PCP) Strategy, also referred to as the wheel strategy.

The basics and pros and cons are discussed as well as a real-life example and introduction into the BCI PCP Calculator. This seminar is appropriate for those who look to generate modest, but consistent, returns which will enable us to beat the market on a steady basis while focusing in on capital preservation.

Registration link time and date to follow.

 

4.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

Register here

 

Sunday, October 30, 2022, at 5:00 pm – 5:45 pm EDT
Covered Call Writing: Multiple Applications Based on Current Market Conditions

Monday, October 31, 2022, at 4:30 pm – 6:30 pm EDT
Selling Cash-Secured Puts: Detailed Start-to-Finish Six-Part Program*

 

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 

 

5. Money Show’s Post-Election Strategies Virtual Expo

November 10th -11th, 2022

Information & registration link to follow

 

Alan speaking at a Money Show event

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

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

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