Position management (exit strategies) is one of the 3-required skills for successful covered call writing and put-selling. “Hitting a double” involves buying back the short call using our 20%/10% guidelines and then re-selling that same option when share price recovers. On 3/13/2019, Mario was kind enough to share with us his trades with SPDR S&P Biotech ETF (NYSE: XBI) where he astutely applied this exit strategy.

 

Mario’s trades

  • Trade opened end of February
  • 300 shares XBI purchased
  • Sell-t0-open 3 contracts of the April $92.00 calls at $1.50
  • 3/6/2019: Buy-to-close the $92.00 calls at $0.15 (10% guideline)
  • 3/13/2019: Sell-to-open the $92.00 calls at $0.55

 

Price chart of XBI showing the classic V-shaped “hitting a double” pattern

 

covered call writing exit vstrategies

XBI: V-Shaped Chart Pattern

 

To implement this strategy, we must be prepared to close the short call when our 20%/10% guidelines are met and this aspect of the strategy can be automated. Once the covered call trade is executed, we can enter a buy-to-close limit order based on our guidelines and if the threshold is met, the call will be bought back. If and when share value recovers, the option can be re-sold. This implies share value declines from its original chart position and then recovers at a later date during the contract, resulting in the classic V-shaped chart pattern.

 

Free dinner for Mr. and Mrs. Mario

Since Mario has 3 contracts, utilizing this exit strategy resulted in a net option credit of $120.00 less trading commissions, about $100.00. It takes less than 4 minutes to close and re-open these trades. Now Mario can take his wife out for a “free” dinner at his favorite restaurant in south Florida thanks to his option trading skills. Keep in mind that this profit is over-and-above the original option credit generated.

 

Discussion

Entering a covered call trade encompasses the first 2 required skills, stock and option selection. The 3rd required skill, position management, will allow us to both mitigate potential losses and enhance potential gains as was the case here where Mario shrewdly “hit a double”

 

***For more information on covered call writing position management, see the exit strategy chapters in these books and the new covered call writing DVD program shown below:

The Complete Encyclopedia for Covered Call Writing- Classic edition

The Complete Encyclopedia for Covered Call Writing- Volume 2

 

New covered call writing DVD program now available with early-order $50 discount expiring this week

Our objective was to create the most complete and comprehensive video program on covered call writing found anywhere. The 4-set video curriculum takes us through the 3-required skills: stock selection, option selection, and position management. The 4th section highlights special circumstances like writing calls against long-term buy-and-hold portfolios.

You Will Learn:
– How to locate the greatest performing stocks for option-selling
– Which Is the best option to sell
– How To calculate your returns
– How To utilize exit strategies – Decrease losses & enhance gains

The program is based on 25 years of actual trading options, not on computer models. All the rules and guidelines presented are based on these real-life experiences. This series will benefit both beginners and more experienced investors and addresses all scenarios that can arise before, during and after trade executions.

https://thebluecollarinvestor.com/minimembership/covered-call-writing-package-4-dvd-series-workbook/

Use this promo code for a $50.00 discount off the $149.00 price:

newdvd50

The program also includes a downloadable workbook.

 

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:

Encyclopedia book review on Amazon.com:

Alan,

The content of your books is potentially life-changing. Thank you so much for sharing your knowledge.

Regards,

Cedric

 

 

Upcoming events

September 14, 2019: Charlotte Chapter of The American Association for Individual Investors

“Converting Non-Dividend Stocks to Dividend-Like Securities”

Live webinar (link to follow)

Saturday from 10 AM – 12:PM ET

 

September 27, 2019 at 1:30 PM ET: Philadelphia Money Show

“How to Select the Best Options in Bull and Bear Markets”

 

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Market tone data is now located on page 1 of our premium member stock reports.

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