OPTIONS

For the benefit of all traders new to the world of options, Alan Ellman of TheBlueCollarInvestor.com highlights a position management opportunity that requires exiting a position related to a particular security and then locating a new stock to begin another option-selling trade.

Exit strategy management for covered call writing and put-selling is one of the three required skills (stock selection and option selection are the other two) critical to maximizing our returns. A few of the position management opportunities require exiting a position related to a particular security and then locating a new stock to begin another option-selling trade. This article will highlight one way we may choose to use our Premium Stock Report to locate such a replacement stock. I am writing this hypothetical scenario on December 2, 2015, using the most recent Premium Stock Report dated November 27, 2015.

There are many ways to use our reports so keep in mind that I am presenting just one possible screening process. In this case the investor prioritizes the stock selection as follows:

  • Price per share < $40.00
  • Industry segment rank of A
  • Scouter rating (currently available only from The Blue Collar Investor) of 9 or 10

Premium Watch List from November 27, 2015 (partial list to fit this article)

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There are two stocks that meet our initial screening requirements—ATVI and CSFL—but note that CSFL does not have adequate option liquidity (N in second column from right). Next, let’s check to see our potential returns for the remaining twelve trading days in the December contracts:

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Next, let’s feed this information into the multiple tab of the Ellman Calculator to see if any meet our 12-trading day goal:

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We find that all four of the selected strikes offer significant initial returns for the remainder of the December contracts. The more bullish we are, the higher the strike we would favor and vice versa. To read the entire article, click here…

By Alan Ellman of TheBlueCollarInvestor.com

Tickers Mentioned: Tickers: ATVI, CSTL

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