Some of our members have inquired about using deep in-the-money puts strike well above current market value instead of out-of-the-money strikes in order to both buy a stock at a discount and capture additional premium as well.

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I am using Michael Kors Hldgs Ltd. Now one might inquire about the huge unexercised return of If we are that bullish, I would prefer out-of-the-money covered calls highlighted in yellow in the left side of the options chain shown above. Here are the calculations from the multiple tab of the Ellman Calculator:. The deeper out-of-the-money we go, the greater the discount but the less likely for the options to be exercised. If unexercised, however, we still generate a nice return from the put premium.

If bullish, look to incorporating out-of-the-money call options into our strategy. A few of our new members have inquired about the open interest column in our Weekly Stock reports. The blue arrows HELE and CATY point to the latter situation. The question we receive periodically is why do we include stocks like HELE and CATY? There are two reasons we include such securities:. Cautiously bullish using an equal number of in-the-money and out-of-the-money strikes.

I believe that most institutional investors have factored in a 25 basis point rate hike with moderating guidance for the December Fed meeting.

Posted on December 5, by Alan Ellman in Investment Basics , Option Trading Basics , Options Calculations , Put-selling , Stock Option Strategies.

BCI Put Calculator buying stocks at a discount covered call writing Ellman 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:. Your article is timely since we may have a wonderful set up coming for cash secured put writing with January expiration. I do not know and little care what the Fed will do this month.

But I care deeply about how the market reacts and what implications it has for my near term tactics. I am assuming a range bound market this week in waiting and sold condors around the SPX for Friday. I will hold my powder for the following week.

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Monday the 21st starts the Christmas week and perhaps the Santa Rally as the market wakes up and realizes the world has not ended. In that scenario I plan to be a heavy seller of cash secured puts after the Yellen announcement into expiry as put prices rise expecting it to be short lived. January could be a very nice income month courtesy of Janet without buying anything!

So I treated this Fed meeting like an earnings announcement or ex-div date and wrote weekly increments to expire this Friday so I am open for Fed week.

If you have covered calls or cash secured puts for regular Dec expiry it may be worth looking at what closing them would do for you this Friday the 11th or Monday the 14th.

Then you can be free to play either break on the 17th and 18th. Thank you Jay, I do have some Dec 18 covered calls, so your advice is very timely, and I will certainly follow your advice. You can view them at The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:. Or do you let the R2 zones dictate what you get?

You can target as much as you like but must understand how that impacts your risk! And I only sell them in my IRA to avoid tax headache. Never all on one ticket. I have read debate about the better instrument: Returns seem incrementally better after commission for SPY given the tight bid ask and better fills.

Risk profile is similar using eiher. As I must emphasize: So I buy back and roll down or up and usually out to the next week when a wing is in jeopardy. Exit strategies are as important here as they are in our core covered call writing!

Also how far do you usually put your long strike from the short strike?

But it is options income related. I brought it up so it is my fault! My broker knows the market can not be two places at one time so they only froze on margin hold the greater risk of the two wings. Unfortunately my bearishness is playing out and my low side is in trouble. But we still have three days to go, are due for a bounce and I have not done an exit strategy yet. Thank you Nate, you did catch my math error in my typing haste. I double counted a premium.

Deep In the Money Short Put

I try like hell to avoid those with exit strategies. I typically use the R2 and S2 for the week for strike selection fudged with my bias.

Like any other option sale the further you go from price action the less you receive but the safer you are. Just a question of nerve as expiry approaches if you have a ball that may go into the rough or is already there! It is a great options income strategy to dove tail with covered call writing and cash secured puts. Just make sure, as always, you understand it completely and operate within your risk envelope,. Jay, Thanks for your clarification and your detailed example.

It helped to see the strategy in action. I am accustomed to looking at a six month chart but a weekly chart makes much more sense in this strategy. Thanks again for sharing your strategy. I am member of blue collar investor and I do covered calls with the stocks that you provide every week.

I have a question. I like to know whether it is good idea to do covered calls or selling puts on SPY instead of stocks? Thanks for your help. I think I saw a reference to covered call writing on stocks kept for buy and hold and dividends?

I am a new member and I love your service. In my studies of your program I understand not trading around earnings ,but how about dividends? You can and should still sell options an eligible securities despite dividend dates prior to contract expiration.

A few important points:. When this occurs it will almost always be the day prior to the ex-date. Alan, I would like to ask you three 3 questions as to how to properly manage my trades prior to expiration Friday when the value of the stock is declining in value. Due to my work schedule my thoughts would be to use the PRICE ALERT technique.

My reasoning being , what if there is no strike to roll down to that meets the BCI criteria. I see a least one serious flaw in my use of price alert notifications.

I know there is no one technique GTC vs. PRICE ALERT that could be considered the BEST, but which one would you ADVISE to a lunch time trader and WHY.

I can relate to your situation. I spent most of my option-selling career while being a full-time dentist.

I went something like this: But seriously, my responses:. If the short call is closed, you can decide on followup strategy during lunch or that evening. I have a question I like to make it clear. What will happen to the Put Options owner if the company goes to bankrupt?

Will it become totally wipe out,too? I really for your answer. If you own put options on stocks of a company that has just declared or filed for bankruptcy, you are in for a large reward.

The delivery and settlement of every stock option is guaranteed by the Options Clearing Corporation. Whoever sold you that right to sell shares of that company at that higher price is obligated to fulfill that obligation, so your profit is guaranteed. Now, what happens when that company files for bankruptcy and trading in its stocks and options are suspended? Since it is the company that is going bankrupt and and not the person or institution who sold you those put options, you are guaranteed your profit and delivery.

An example of this are put options on Lehman Brothers which filed for bankruptcy in I like this strategy and I have been using it in my ROTH IRA to accumulate shares of dividend growth stocks. But I use at the money puts or slightly out of the money puts. Many times the stock remained above my strike and I kept the premium and repeated the process twice or sometimes three times before I got assigned to the stock.

Congratulations on your success with cash secured puts to enter div growth stocks! I hope you turn around immediately and write OTM covered calls on all of them every month without fail switching to weeklies in the ex-div months to hop scotch that date uncovered. And if called, buy back the next dip and do it again…- Jay. I bought my first discounted position through puts on November expiration at a huge discount on GDX. The price was at about Weeks later it went below Three days later I could have been out at above I did what I felt was right for me at the time and I am happy with the results.

After all I was down hundreds of dollars a week earlier. Another strategy could have been to sell calls when priced moved higher. GDX does have high volatility so I knew price could move drastically. About 52 iv when SPX was at about 14 iv. Here are some take aways: Selling puts can be very beneficial to your cost basis.

Instead of paying Now if my intention was to be a long term holder this would have been a super entry instead of just paying the I think some times people forget that they are holding a portfolio. I could have sold at the bottom and still had a profitable month. You can only trade what is in front of you at the current time. We can put the odds in our favor by using good fundamentals and technicals. Think through your decisions before making them.

If they make sense act on it. Either sell OTM calls or just cut the loss. The BCI methodology is a beautiful strategy. Once you get comfortable using add your own little tweaks that fit your temperament.

Trade intelligently and the profit will come. GDX is a live snake difficult to hold. Better to just buy a call or debit spread on it a few months out if you like it limiting risk and capital invested. And I love your coaching to not panic! There are many strategies when it comes to the market. I have never found panic, hope, fear or euphoria to be winners: When a stock like LGIH is on the running list for several weeks, then drops off mid-stream, in this case, two weeks before expiration Friday, would you normally buy the call back and sell the stock, rather than waiting until expiration of the call.

Now, if we sell a stock as part of our normal management techniques, a replacement stock is selected from the most recent stock or ETF report. Mail will not be published Required. You can use these tags: Notify me of followup comments via e-mail. You can also subscribe without commenting. Optionally add an image JPEG only. Site Disclosure Statement Glossary Sitemap Timeline. Members Log In About Us Glossary for Covered Call Writing Free Resources including Ellman Calculator Ask Alan Training Videos Free Training Videos Events Calendar Facebook FAQ.

The Blue Collar Investor Learn how to invest by selling stock options. Covered Calls Beginners Corner — Cash-Secured Puts The Blue Hour The Blue Hour For Premium Members. Can We Use Deep-In-The-Money Puts to Buy a Stock at a Discount? Put Calculations for KORS. Premium Stock report- Open Interest Column. About Alan Ellman Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing.

Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog..

He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies. Connect With Us To send us an email, contact us here. Additionally you can also find us on any of the social networks below: A Key Component to Successful Long-Term Investing. Best wishes to all for a successful week, — Jay.

Good reasoning Jay, I plan to follow your indications. Good luck to you too — Roni. Thanks, Roni, I appreciate your always kind words. For your convenience, the link to the BCI YouTube Channel is: I would like to play with this strategy and see if it works for me.

Just make sure, as always, you understand it completely and operate within your risk envelope, SPX closed at Congrats, way to snatch up that exit when the opportunity presented itself. Hi Alan, I am member of blue collar investor and I do covered calls with the stocks that you provide every week.

Thanks for your help Regards, Ram. Ram, Here is a link to an article I published on this topic: Here are two links: William, You can and should still sell options an eligible securities despite dividend dates prior to contract expiration.

A few important points: Thank you for your advise and insight to my questions. David, I can relate to your situation. But seriously, my responses: Alan, I have a question I like to make it clear. HT, If you own put options on stocks of a company that has just declared or filed for bankruptcy, you are in for a large reward. Martin, Congratulations on your success with cash secured puts to enter div growth stocks!

High IV does equal High risk. Big moves are expected with such IV. Nate, Thanks for your great post and great read as always! Alan, When a stock like LGIH is on the running list for several weeks, then drops off mid-stream, in this case, two weeks before expiration Friday, would you normally buy the call back and sell the stock, rather than waiting until expiration of the call. Subscribe Here - Have the latest blog articles sent to your inbox. Subscribe to this articles Comments via RSS Feed.

Learn how to take a Screenshot so you can add it to your comment. Leave a Reply Click here to cancel reply. July 15, 8: Washington DC Chapter AAII- Summer Workshop. The New Stock Market- Algorithmic and High Speed Trading January 15, Options That Expire Weekly and Conventional Expiration Cycles September 26, Short Selling: Positives and Negatives January 30, The CBOEs Volatility Index VIX September 11, Penny Pilot Program October 29, MarioG Here is my status and my experiences after Expirat Roni Thanks Barry, I was trying to enter a covered c Barry B Hi Roni, WCN had a 3 for 2 stock split on June Alan Ellman Randal, Yes.

When a strike expires in-the-money Alan Ellman Luis, When I first started with covered call wr. Recommended Investing Links DR.

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I was a frustrated blue collar investor just like you.