Our strategy goal along with overall market assessment, chart technicals and personal risk tolerance will ultimately guide us to the most appropriate put strikes price to select. When viewing an options chain for puts it is apparent that in-the-money strikes higher than current market value will generate the highest premiums. This is because there is both an intrinsic value component and a time value component.
At-the-money and out-of-the-money strikes only have time value components to the option premiums. First, notice that the time value components of both strikes are precisely the same. Given the equality of time value, the strike selection, to a great extent, will be based on our goals which must be identified prior to entering every trade.
Since exercise is not an issue, both strikes are in play but since our goal is still cash generation, using the out-of-the-money strikes will give us sound returns and protection to the downside 7. Here we use the out-of-the-money puts.
The more bullish we are, the closer to at-the-money we go. If we are strongly bullish I would favor out-of-the-money covered calls giving us the opportunity to generate two income streams in the same month with the same investment.
The moneyness of put strikes is dictated by strategy goals, overall market assessment, chart technicals and personal risk tolerance. Selecting an in-the-money put strike to generate higher premiums is not a reason for strike selection because the loss of share value on the stock side will counterbalance the additional put premium. More information click here.
American Association of Individual Investors. November 3rd — November 5th, Loews Royal Pacific Resort. Market in confirmed uptrend. I remain defensive despite all the positive signs based on the lack of clarity regarding the policies of the new administration. Wishing you the best in investing,.
Cash-secured puts PCP strategy put calculator put selling. To send us an email, contact us here. Subscribe to our e-mail newsletter or RSS feed to receive updates. Contact us by phone at Additionally you can also find us on any of the social networks below:. ANET had really a terrific performance.
This was a terrific month. All my calls were exercised, average 2. Must read it again more carefully. It is the perfect time with a long weekend to relax, take a breath and think about how to flex these strategies for March expiry. You have always been good about listening to my two cents so. If you are smart you will use me as a contrary indicator and do the opposite of everything I say: I too have a large cash position.
I am not bullish since seasonality is crummy and Trump gets more unstable every day. So if I buy anything it will be on pullbacks. This is not the time to do both transactions on the same ticket or day in my opinion. My risk tollerance will not let me place an order without selling simultaneously the covered call for some protection.
I believe that the market can continue to rally for some time, as money from the sidelines is flowing into stocks in great volumes. But some stocks may pull back after strong gap ups. I suggest to friends not nearly as market sophisticated as you but who know it is my passion and ask — dangerously — for my advice that trading is tough!
I suggest to them if what they are doing is beating SPY rock on! If not consider buying SPY and devoting the time to other hobbies: I do not consider myself very sofisticated, but I share your passion, and love to hear your suggestions. After re-reading this article, let me know if you need further clarification on any of these points. Looks like we have a large list of eligible candidates for the watch list published last night. Keep an eye of the 23 candidates that did NOT have adequate option liquidity as of market close on Friday…still a large number of stocks with adequate open interest.
My personal preference is cash flow only, and therefore, as you say, it all depends on how bullish you feel to choose the OTM strike, closer or further from the ATM. Since we are at the beginning of the option cycle, many of them should have added OI as the option cycle continues. You can access it at:. Great to see so many candidates on the new running list this week. But I still have a problem to diversify at 5 industries as you recommend in your book since most stocks are in financials and tech.
Other industry segments represented this week include:. Alan- You sell a covered call and the underlying goes thru the strike price in week 1 or 2 of a 4 or 5 week option cycle. Is it when the delta of the option hits. Prior to this there is too much time value left in the premium that you would need to buy back and also for every dollar that the underlying goes up, you are still making a little because the the delta is not 1.
I view and establish these sort of important decisions based on practical, rather than theoretical applications. Rather than focusing on Delta although this does show your impressive advanced knowledge of the Greeks , I prefer to evaluate the time value cost-to-close.
The question we ask ourselves is can we generate more than 0. I would require at least a return of 1. I focus on actual time value cost to close and compare that stat to the returns that can be realized in a new position in the same contract month. Stocks go up and down in a contract month. You can roll-up, roll-up-and-out, buy it back and sell something else, etc.
I executed the roll-up with NVDA a few times last year. With a strong run up in price in a liquid option you can sell more time premium with a roll-up. Buying back and deploying the cash into another security is also acceptable as there may be more extrinsic value during the same timeframe in another security. In short, just do the math and the rest will follow. Before the recent expiry, most of my trades were in this situation at some point, and I had to do rhe math as you say.
Every time when one of my stocks gets a bounce, I feel more protected, and hope it will stay there till expiry. Is there a covered called algorithm to determine whether one should write in-the-money, out-of the-money or at-the money? Overall market assessment Personal risk tolerance Chart technicals Return goals.
Algorithms are only as good as the equations fed into them and must reflect our individual trading styles. The human decision-making abilities we have will give us an advantage over those who depend SOLELY on equations developed by others. Software programs are essential to our success but ultimately we must pull the trigger on our trades and management techniques. One size does not fit all. Many of our members are more aggressive than me at this time, some less so.
There is no right or wrong here. I have a query regarding trades and account size. The number of stocks we manage should also be based on our comfort level once the minimum threshold is met.
An average range would be from 8 — 15 positions. The reason that liquidity is important to us is that we may be in a situation where an exit strategy opportunity may present itself and the tighter the spread, the less time value we will pay to execute the trade. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates. For your convenience, here is the link to login to the premium site:.
Check out this link: Is the Options sale price the Bid or Ask for the strike? I then proceeded to do some research and also read your comments on the subject Classic Encyclopedia , I realize you can prevent an assignment by rolling the option at some time value loss if you want to guarantee you will will retain the stock overwriting of Leaps situation.
Option Holder or buyers of the call do have choices, and as you explain, if the option is trading at more than parity Time value 0 the holder can Sell to Close the call to reap the time value and buy the stock before the Ex-Div Date to capture the dividend. If you take no action as an Option holder, call value will decrease by the dividend.
Regarding the attached NTES image. It shows for the next 7 months Options chains for the next 7 months period weekly for 5 5 weeks, then monthly with columns for the Greeks. It shows clearly what happens to the time value as Expiration approaches with actual numbers. Just as you have mentioned many times, the last two weeks it drops quickly. The progression for time value for 5 weekly periods is 9,8,7,5,4,2 which correlates with the negative Theta column while intrinsic value column stays constant.
Delta stays constant throughout, and Gamma change in delta increases as the time period gets smaller. Notice also in the progression, the difference in Time value stays relatively constant at 1. So I see what you mean by waiting till the next cycle begins to sell a call instead of purchasing it 5 or 6 weeks out, where time value loss per week is less, avoiding the increase in risk with the additional time.
First a comment about ex-dates and our premium reports: Over the years, we have found that dividendinvestor. As with all resources yes, even BCI , we can never achieve or locate perfection. As of today Thursday , the ex-date is still listed as May, …see screenshot below.More...