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A little more about how I pick my covered calls.

Recently TLRA showed up on Saul's board. A cursory review was enough to include it in my covered call list: I was familiar with the market from my TTD days, chart looked OK, no red flags.

This weekend TLRA was one of the stocks picked by the Call Selector along with DOCU and ZS. On Friday my ZS call expired worthless. Since ZS is already in the portfolio it has a certain preference. One of my rules is to sell calls on stocks that are going up (TA - momentum), if my call is exercised I'll do really well earning both the premium and the capital gain from the stock. So, check it out:

http://softwaretimes.com/pics/tlra-zs-docu.gif

TLRA is the clear winner!

How about some serious research? Saul's is the go-to board these days and it's free. There I found

Subject: TLRA

https://boards.fool.com/tlra-34274852.aspx?sort=whole

That's as good a discussion as you'll find at TMF!

-----------------

How to search Saul's board with Google

site:fool.com "Saul's Investing Discussions" TLRA

Just replace "TLRA" with the subject you are interested in.

Denny Schlesinger
 


=----- premium -----= =---- assigned ---= =-------- total --------= cont
tick close exp strike b-a cash $$/d CAGR cash $$/d CAGR days disc cash $$/d ract

DOMO 24.11 09-20 25.0 2.10 1,255.50 48.29 258% 514.50 19.79 487% 26 8.7% 1,770.00 68.08 6
MDB 139.50 09-06 141.0 8.10 805.50 67.13 510% 130.50 10.88 718% 12 5.8% 936.00 78.00 1
OKTA 132.56 09-06 134.0 6.85 680.50 56.71 397% 124.96 10.41 568% 12 5.1% 805.46 67.12 1
TLRA 9.52 09-20 10.0 .70 1,045.50 40.21 191% 700.50 26.94 472% 26 7.3% 1,746.00 67.15 15
ZS 71.27 09-13 72.5 4.60 915.50 48.18 258% 226.50 11.92 387% 19 6.4% 1,142.00 60.11 2


Why not MDB or OKTA? I'm glad you asked! I already have calls on them.
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Denny,

I'm trying to understand your Call Selector output.

For the TLRA row does the premium cash of $1045.50 mean selling 15 contracts @ $70 each? (which is $1050, not quite the same)

So if 1500 shares bought at $9.52 are assigned at $10.00, the assign cash would be $720, but yours is 700.50. What am I missing here?

The days value for TLRA is 26, but the number of days between August 26 and Sept 20 is 19 days.

Lastly what the "cont ract" column mean?

Sorry for the dumb questions.

Don
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Wish I could edit that last post.

"cont ract" is number of contracts, duh.

Are the differences in the cash values due to commissions?
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For the TLRA row does the premium cash of $1045.50 mean selling 15 contracts @ $70 each? (which is $1050, not quite the same)

Yes. My broker charges $4.50 in commissions per trade


So if 1500 shares bought at $9.52 are assigned at $10.00, the assign cash would be $720, but yours is 700.50. What am I missing here?

My broker charges $15 in commissions for the assigned option plus the $4.50 commission on buying the stock.


But remember that this exercise is only to compare calls to find the best ones we can expect, the actual trade will be quite different depending on pre market events like futures trading, Trump tweets, whatever. Before one buys the shares one has to check that the options really are as expected, they could be better or worse.

Market lore is that early Monday stocks drop and rebound later in the day. My guess is that people sell based on the news they read over the weekend and after a couple of hours the market goes back to normal, whatever that means. ;) What I have found is that trading early on Monday is not a good idea, wait until around noon. If the market is still down you might not trade at all.

Funny thing, people say selling calls is not risky because 70% of options expire worthless but we want the stock to go up and don't mind getting assigned! Much better than the stock dropping and losing capital.

If the TLRA calls are assigned you make over 12% in 26 days -- CAGR > 500%. If the stock goes down you have a 7.3% downside protection. Better even than sliced bread! ;)

Denny Schlesinger
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Hi Denny, I tried to do the math for CAGR on the MDB calls you're using and I get greatly different results. Perhaps my formulas are different - I feel like we're comparing math homework, haha.

Would you mind showing how you calculate the CAGR on that MDB call please? I'd really really appreciate it.
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Hi Denny, I tried to do the math for CAGR on the MDB calls you're using and I get greatly different results. Perhaps my formulas are different - I feel like we're comparing math homework, haha.

Would you mind showing how you calculate the CAGR on that MDB call please? I'd really really appreciate it.


I don't remember offhand how I did the online calculation but the results are close enough for my purposes. Two thing to remember, 1) for the selector precision is not important, only pointing out the best calls matter, and 2) when I was coding the thing I didn't really know what would end up as important and I threw in all I could think of. Learning to use the Selector since May shows that the most important number is Premium $$$ per Day (pick the highest), followed Premium Cash (drop the lowest), tempered by Days to expiration. This week the initial parameters picked 936 calls from 58 option chains. By tightening the parameters to SSS/D > $40 and Cash > $600 the number dropped to 15 calls from 5 option chains of which I hand picked the five shown.

Calculation CARG or Internal Rate of Return (IRR)

The best (or proper) way to calculate it is to apply the Excel XIRR function to the cash flow

XIRR function
https://support.office.com/en-us/article/xirr-function-de124...

I don't use Excel (long story for another day), I'm using LibreOffice (I really dislike Apple's Numbers).


CARG: Premium
Date Secty Qty Price Strk Exp. Comm Cash Disc

8/25 Share -100 139.50 4.50 -13,954.50 Buy shares
8/25 Call 100 8.10 141 09/06 4.50 805.50 5.8% Sell call
9/06 Share 100 139.50 0.00 13,950.00 Still have the shares
CAGR 504.15%

CARG: Assigned
Date Secty Qty Price Strk Exp. Comm Cash Disc

8/25 Share -100 139.50 4.50 -13,954.50 Buy shares
8/25 Call 100 8.10 141 09/06 4.50 805.50 5.8% Sell call
9/06 Share 100 141.00 15.00 14,085.00 Shares called
CAGR 709.78%

CARG: Capital appreciation if assigned
Date Secty Qty Price Strk Exp. Comm Cash Disc

8/25 Share -100 139.50 4.50 -13,954.50 Buy shares
8/25 Call 0 8.10 141 09/06 0.00 0.00 0.0%
9/06 Share 100 141.00 15.00 14,099.00 Shares called
CAGR 32.73%


I've uploaded the file as .ods and .xls. Numbers does not know how to translate the XIRR function, sorry!

http://softwaretimes.com/downloads/call-selector-xirr/mdb.od...
http://softwaretimes.com/downloads/call-selector-xirr/mdb.xl...

Questions?

Denny Schlesinger
 

PS: The small difference between the online result and the spreadsheet could be the "date/time." In the spreadsheet I'm using whole days, ZERO seconds (YYYY-MM-DD 00:00:00). php might be using day/time (I wasn't paying attention) giving a different CAGR. Online date/time is tricky, the server is in California so you don't want to use the server's time. IIRC I set the time to America, New York but didn't bother to round off the day.
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CAGR is not really a good metric for the covered calls strategy for several reasons. One, is that the strategy is for generating cash to live on so it gets consumed and cannot be compounded. As Denny says, it is $/day that counts and from an historical standpoint the success/failure metric would be cash generated in year 2 versus that generated in year one.

Another problem is that you probably cannot compound the entire gain because you must add another 100 shares. Not like reinvesting dividends where you can buy fractional shares and compound every penny.

For example,the 9/6 $143's netted $805 which would buy only 5 shares. So you need 20 contracts (actually 18) in order to compound the results the next round.

KC
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Another problem is that you probably cannot compound the entire gain because you must add another 100 shares. Not like reinvesting dividends where you can buy fractional shares and compound every penny.

For example,the 9/6 $143's netted $805 which would buy only 5 shares. So you need 20 contracts (actually 18) in order to compound the results the next round.


There is a kernel of truth in the above but it is not entirely right. $805 will only buy 5 MDB but it will buy 73 TLRA! It certainly is lumpier than reinvesting dividends but not as bad as KC says.

In practice I try to keep 3 month of expenses in cash investing the rest. I avoid very high priced stocks, currently the limit is around $150 per share and I try to find some low priced shares like TLRA to give me flexibility to avoid the trap KC mentions.

Denny Schlesinger
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