| Selling Weekly Covered Calls Using the CEO StrategyThe Blue Collar Investor
The CEO Strategy (Combining Exchange-traded funds with stock Options) is a covered call writing-like strategy where the only underlying securities considered are the 11 Select Sector SPDRs. These are ETFs that divide the S&P 500 into 11 different sector funds. In this article, I will highlight a real-life example detailing how to craft such a portfolio with weekly options for a series of 5-day trades, using a cash reserve of $100k.
CEO Portfolio Setup Spreadsheet: Data Entry
- The March monthly contracts expired, and the April contracts begin on March 18, 2024
- The weekly contract expires on 3/22/2024
- We are using $100k and the top 5 performing Select Sector SPDRs
- The spreadsheet shows a guideline cash-reserve of $2k – $4k (yellow cells) for potential exit strategy executions
Portfolio Initial Setup Spreadsheet
- After entering the top-performing Select Sector SPDRs and the prices-per-share, the spreadsheet calculates a cost of $100,026.00, a shortfall of $26.00 (yellow cell)
- There is no cash reserve aligning with the $2 – $4k guideline
- An adjustment of 1 of the positions is necessary
- I decided to reduce the XLF holding from 500 shares to 400 shares for the final portfolio setup (circled in red)
Portfolio Final Setup Spreadsheet
- 500 shares of XLF were reduced to 400 shares (red circled area)
- The new portfolio cost is $95,962.00 (top red arrow)
- The cash reserve for potential exit strategy executions is $4,038.00 (yellow cell)
Broker screenshot of 2 of the option trade executions, after share purchase
Initial weekly calculations for these 5-day CEO covered call trades
- Blue cells: The spreadsheet calculates a series of 5-day trades, if taken through contract expiration
- Yellow cells: Calculations of 5 breakeven price points (price-per-share – total premium)
- Brown cells: Initial 5-day time-value returns (ranging from 0.20% – 0.38%)
- Green cells: Annualized initial time-value returns based on 5-day trades (ranging from 14.44% – 35.78%)
- Pink cells: Upside potential if share price moves from current market value to the out-of-the-money call strike. This represents additional income stream potential for each trade, over and above premium returns (ranges from 0.47% – 2.23%)
Discussion
A streamlined approach to covered call writing, using the CEO Strategy, can be accomplished by selecting the top-performing Select Sector SPDRs, using the CEO Portfolio setup Spreadsheets and the BCI Trade Management Calculator (TMC).
Typically, annualized returns will range from 15% – 35%, with additional income potential from share appreciation.
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The Complete Encyclopedia for Covered Call Writing- Classic Edition
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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 publish several of these testimonials in our blog articles. We will never use a last name unless given permission:
Alan,
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Upcoming events
1. Mad Hedge Investor Summit
Tuesday September 17, 2024
11 AM ET – 12 PM ET
Zoom webinar.
Portfolio Overwriting: Covered Call Writing Our Buy-And-Hold Stocks
Increasing profits and avoiding tax issues
Our buy-and-hold portfolios in non-sheltered accounts are generating 8% – 10% per year. Can we potentially increase these yields by selling stock options while, at the same time, dramatically decreasing the probability of our shares being sold to avoid potential tax implications? The answer is a resounding “yes”.
Portfolio Overwriting is a strategy that can benefit millions of investors seeking to enhance portfolio returns using a low-risk covered call writing-like strategy.
Traditional covered call writing will also be discussed to demonstrate comparisons between the 2 strategy approaches.
Topics discussed
Summary
Brief review of covered call writing
Option basics
What is an option-chain?
Option selection
Calculating covered call returns: Real-Life examples
Portfolio overwriting defined
Basics of strike selection
Pros and cons of portfolio overwriting
Why early exercise is so rare
Rolling options
Role of dividends
Locating ex-dividend dates
How to avoid early exercise
Avoiding earnings reports
Practical applications: Delta, implied volatility, annualized returns
Real-life examples with calculations
BCI Trade Management Calculator
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