=--- expired ----= =--- assigned -----= =------- total --------=tick exp strike b-a cash p/day CAGR cash p/day CAGR days disc cash p/day diff contPCTY 06-21 110.0 2.45 240.50 48.10 551% 1488.50 297.70 999% 5 2.5% 1729.00 345.80 519% 1MDB 07-12 172.5 7.35 730.50 28.10 88% 656.00 25.23 226% 26 4.4% 1386.50 53.33 -10% 1TEAM 06-28 132.0 3.25 320.50 26.71 114% 184.50 15.38 232% 12 2.5% 505.00 42.08 -42% 1CYBR 06-28 133.0 2.80 275.50 22.96 92% 250.50 20.88 245% 12 2.1% 526.00 43.83 -9% 1TWLO 07-05 144.0 4.20 415.50 21.87 78% 365.50 19.24 194% 19 3.0% 781.00 41.11 -12% 1OKTA 07-05 132.0 4.10 405.50 21.34 85% 293.50 15.45 187% 19 3.1% 699.00 36.79 -28% 1QCOM 06-28 70.0 1.30 255.50 21.29 77% 236.50 19.71 200% 12 1.9% 492.00 41.00 -7% 2DOMO 07-19 30.0 1.65 655.50 19.86 91% 484.50 14.68 203% 33 5.7% 1140.00 34.55 -26% 4AVLR 07-19 70.0 3.00 595.50 18.05 65% 478.50 14.50 143% 33 4.4% 1074.00 32.55 -20% 2ZS 06-28 80.0 2.15 210.50 17.54 131% 218.50 18.21 446% 12 2.7% 429.00 35.75 4% 1The top pick, PCTY, is a curious case, the bid ask spread is 0.05 - 4.80 which means it might not be available at the suggested midpoint premium of 2.45. This is the reason to check on the option before buying the stock. While PCTY does not seem to be neither a Saul nor an NPI pick it has been talked about superficially at NPI https://boards.fool.com/shop-or-sq-should-totally-34137087.a... and more in depth at Saul's https://boards.fool.com/paylocity-pcty-research-and-analysis... It will be my first choice.My second choice is CYBR which has also been looked at Saul's https://boards.fool.com/cybr-cyberark-34214033.aspx?sort=who...https://boards.fool.com/cybr-analysis-deep-dive-34142669.asp...https://boards.fool.com/bbn-i-like-4-companies-which-one-341...Denny Schlesinger
=--- expired ----= =--- assigned -----= =------- total --------=tick exp strike b-a cash p/day CAGR cash p/day CAGR days disc cash p/day diff contPCTY 06-21 110.0 2.45 240.50 48.10 551% 1488.50 297.70 999% 5 2.5% 1729.00 345.80 519% 1MDB 07-12 172.5 7.35 730.50 28.10 88% 656.00 25.23 226% 26 4.4% 1386.50 53.33 -10% 1TEAM 06-28 132.0 3.25 320.50 26.71 114% 184.50 15.38 232% 12 2.5% 505.00 42.08 -42% 1CYBR 06-28 133.0 2.80 275.50 22.96 92% 250.50 20.88 245% 12 2.1% 526.00 43.83 -9% 1TWLO 07-05 144.0 4.20 415.50 21.87 78% 365.50 19.24 194% 19 3.0% 781.00 41.11 -12% 1OKTA 07-05 132.0 4.10 405.50 21.34 85% 293.50 15.45 187% 19 3.1% 699.00 36.79 -28% 1QCOM 06-28 70.0 1.30 255.50 21.29 77% 236.50 19.71 200% 12 1.9% 492.00 41.00 -7% 2DOMO 07-19 30.0 1.65 655.50 19.86 91% 484.50 14.68 203% 33 5.7% 1140.00 34.55 -26% 4AVLR 07-19 70.0 3.00 595.50 18.05 65% 478.50 14.50 143% 33 4.4% 1074.00 32.55 -20% 2ZS 06-28 80.0 2.15 210.50 17.54 131% 218.50 18.21 446% 12 2.7% 429.00 35.75 4% 1
CYBR rocks! Its price action has been very strong of late.A
This is interesting stuff, Denny, but my if you don't mind a question, can you help me interpret what you have here.Lets take the case of MDB on the list. Currently the stock is priced at $165.68, All time high at $184.78 was reached last week during an intraday blowoff where it started ~$169 and finished the session $172.36 which is somewhat close to that strike price of $172.5. So, given that you are writing covered calls for quick profit, and this MDB call is priced attractively among all calls, can we assume that Mr. Market thinks that it is quite unlikely that MDB rises to $172.5 between now and the expiration on July 12th?Thanks a bunch for your work,
The top pick, PCTY, is a curious case, the bid ask spread is 0.05 - 4.80 which means it might not be available at the suggested midpoint premium of 2.45. This is the reason to check on the option before buying the stock. Do you place your orders at the mid-point? Depending on the spread, I either put them at mid-point or higher to see if they hit. I have noticed a few times that they can hit at the very high end of the spread. If the order executes quickly, then I wonder what others know. For example, I sold MDB calls for 21 June at $160 back in May and shares were around $133. I didn’t log the details now but I set the price at the high end of the spread and it went quickly so my first thought was earnings would cause the stock to jump a lot. But that jump seemed to lag by one day before the shares jumped pass my call price.I rolled out that call one week when shares were above 170 which gave my a nice premium, which I Guess I can continue to do as long as shares stay above 160 if they don’t get called early.
Well, I just lost a pretty long post and I'm not going repeat it. Just will say that Denny hooked me. I used to sell covered calls to boost returns on dividend stocks so I had some familiarity. I didn't use Denny's best but just looked at my t en holdings that had enough shares to make options worthwhile. Won't repeat everything, but I decided to just sell June 21 calls, liking the idea of rinse/repeat 52 times a year. Ended up selling calls on AYX and OKTA. Have an order in for ZS but the software stocks were moving up fast at the open and then as I was placing the ZS order the underlying went south and I didn't get filled.Maybe later in the week or on the weekend I'll regale yáll with the results. Hmmm, the early enthusiasm for these 10 has abated and my gains are cut in half but my AYX calls which were up 55% have come back down and the OKTA actually shows green.KC
PCTY turned out to be a false positive as I figured. I bought CYBR instead and I'm waiting for the call the execute.Because it opened high I'm selling the $134 strike price near the suggested premium ($2.80).Denny Schlesinger
I followed Denny on the TEAM call. thanks for putting this together and posting!5
Lets take the case of MDB on the list. Currently the stock is priced at $165.68, All time high at $184.78 was reached last week during an intraday blowoff where it started ~$169 and finished the session $172.36 which is somewhat close to that strike price of $172.5. So, given that you are writing covered calls for quick profit, and this MDB call is priced attractively among all calls, can we assume that Mr. Market thinks that it is quite unlikely that MDB rises to $172.5 between now and the expiration on July 12th? Of course I don't mind the question! But you are thinking too much! LOLAll the Selector knows is that investors are willing to pay around $7.35 for the 07-12 $172.50 calls which expires in 26 days. 735/26 = $28.10 per day. Should the MDB skyrocket, you get an additional $656.00 or $25.23 per day for a total of $1,386.50 or $53.33 per day.The Selector is working using the Friday closing price, $165.745. The investment is $16,574.50. $1,386.50 is 8.37% return in 26 days or around 117% annualized. Should MDB tank, you get a 4.4% discount on the cost (730.50 / 16,574.50 = 4.4% That's all the Selector "knows."The execution varies from these numbers because options are very volatile but they are close enough to work with.Thanks a bunch for your work, You are most welcome but rest assured I do it to pay my bills! LOLDenny Schlesinger
Do you place your orders at the mid-point? Sometimes. Sometimes close to the ask. Sometimes outside the spread. I don't have a rule, it's just gut feeling.In fact it's best to sell as quickly as possible instead of trying to squeeze a few more bucks out of it (...hogs get slaughtered, the most expensive eighths, etc.).Denny Schlesinger
KC, don't ignore the opportunity loss. Make sure the premium and strike price are high enough to make it worth while.Denny Schlesinger
Danny,I am really interested in learning this, I know I asked before, but do you have any kind of blogs, instructions, notes, anything, that I can study to learn option trading?Even if not your notes, something that you would deem helpful and recommend for a newbie will be greatly appreciated too.Regards,Fbella
Bella:I don't have a blog about options. What I know and do I've posted at NPI.Options are a complicated derivative of stocks that for the longest time people did not know how to put a price on. More on that later. There are many ways of trading options. My interest has always been to generate income but there are other ways to trade options that I don't use and know little (or nothing) about.Options give the buyer of the option a right that the seller must fulfill. There are two kinds, calls and puts. Calls give the buyer the right to buy a stock at a set price (strike price) until a set date (expiration date). Puts give the buyer the right to sell a stock at a set price (strike price) until a set date (expiration date). That's it!How to use the above is where it gets interesting and the variations are multiple. I'm only interested in generating income from covered calls. New term, "covered!" When you sell an option you sell a right and take on an obligation. Your broker want's protection! If you don't come through, he's on the hook. You can secure your short call position with cash or with shares. The shares in your portfolio "cover" your obligation.The Basics of Trading Options Contractshttps://www.dummies.com/personal-finance/investing/investing...selling covered calls for incomehttps://www.google.com/search?newwindow=1&client=safari&...For the longest time people didn't know how to set a price on options. Then Fischer Black, Myron Scholes, and Robert C. Merton figured it out and Merton and Scholes got the Nobel Prize in 1997. Fischer Black missed out because he died in 1995. This formula revolutionized option trading but it is based on the wrong mathematics. Sorry, but that's Ph.D. level stuff! LOLhttps://en.wikipedia.org/wiki/Black%E2%80%93Scholes_modelOther ways to trade optionsoption trading strategies https://www.google.com/search?newwindow=1&client=safari&...When you are ready for graduate work, Option Volatility & Pricing: Advanced Trading Strategies and Techniques by Sheldon Natenberg is the book to study. It explains in detail how options work which is what allowed me to come up with my strategy for creating income.https://www.amazon.com/Option-Volatility-Pricing-Strategies-...From start to now it's taken me well over a decade with some hard lumps on the way. Be careful.Denny Schlesinger
Thank you Denny!!!!! Much, MUCH appreciated! I have saved the post and printed what was easy to print.I have some studying to do for sure, but then it's always better to learn from the best, You!Thanks again,Bella
The first week of options was successful two ways: 1) both positions expired worthless so pocketed the premiums, 2) learning experience. I think I need a process for the event of having the shares called away. The selling process is designed to minimize the chance of having the shares called away. But I am sure that many (most?) would say that the market "has it right" and it is 50/50 whether I keep the shares or say goodbye to them. In any case, if I have two or three positions a week I will have plenty of experience in dealing with the aftermath of having the shares called.Unlike Denny, who (I think) is buying the shares and selling the calls simultaneously within a universe of option friendly stocks, my calls are written on shares of a static portfolio. If called, I will want those shares back. I'm exposing only 5% to 10% of the portfolio so that will influence the process. With the volatility of these stocks, I could sell puts and assume the risk that the stock continues to rise. And of course there is the problem that if the stock falls during the week it becomes less attractive write the calls as either the strike price is lower (get less if called away) or the premium is lower (if maintain a safer strike price). Or, I could select one of the other 7 or 8 stocks that look better and buy it for the next round of options.But, need a checklist and process.KC
One might suggest that the other thing needed is a clear sense of what can go wrong, depending on the specific scenario. I think Denny has a well developed sense of this so that even when things don't go as he expects, that the damage is limited. But, I think lots of people are open to surprises.
KC, thanks for the comments. Trading options is not simple as you are finding out. To reduce opportunity loss (having the stock called away) one can increase the strike price which reduces the premium. Closer expiration dates also tend to reduce opportunity loss. It's balancing these variables that is quite hard to do without a spreadsheet.The thing to remember is that not all trades will be positive. The question is whether selling calls will improve your overall results. My results have been good so far. There are three outcomes1.- Expire worthless, stock up. You earn the premium, rinse, repeat. Good.2.- Expire worthless, stock down. Because of the premium your loss is less than without the call.3.- The stock is called, opportunity loss. This is not a real loss and the trade should be profitable. For example, yesterday TWLO was called away with a large opportunity loss, $10.86 per share. But the position produced 8.9% in 52 days, over 60% annualized. Had I not sold calls the price appreciation would have yielded 8.7%, less than the option trade did. No real loss!It's a balancing act! Denny Schlesinger
The other option is to roll. I did this Thursday with my Coupa 120 June covered calls. I didn't want the shares to be called away. While the stock was ~127, I sold the July 135 calls for ~$315. Of course, I had to buy the June 120 back, which cost me (as you might expect) ~$700. thanks for the thoughts and strategies, Denny.
Thanks so much for sharing this, Denny. I think it is very interesting. For now, most of my dabbling in these stocks has sub-100 share positions (except 200 shares MDB) and I am not sure I would want to cover all my MDB! Maybe half, but then I have to consider if it's worth the effort.Though I like the idea of working up certain company share counts to have the flexibility to cover half a position. This is interesting stuff.Karen
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