Strategy

Strategy

Monthly Income Options Strategy

STRATEGY: Buy a stock, sell a call at-the-money or slightly out-of-the-money and sell a put at a strike price with a probability of assignment of less then ten percent.

OUTLOOK: Expecting the stock to trade in a channel such that the call is assigned and the put expires worthless.

ACTIONS: If both the call and put expire, sell another call and put a week to ten days out for income generation.
If the call expires and the put is assigned, sell calls on the full position at a strike price that is approximately ten percent above the current market price going out no more then one month.

If the call is assigned, review this or another candidate for a new covered call and naked put opportunity.

PROFIT: If the call and put expire, the return is the call and put option premium received. If the call is assigned the return is the call and put option premium plus any price appreciation in the stock which is limited by the strike price of the call sold.

RISK: Risk is related to stock ownership. It is reduced by the amount of the call and put option premium received. To exit this trade buy the call back to close and sell the stock. Wait for put expiration or sell the position when assigned.

BREAKEVEN: Stock purchase price less the call and put option premiums received.

Monthly Income Signal

Best Risk/Reward Covered Call and Put options based on rate of return and probability of assignment for near term strike dates (1 to 2 weeks). Goal is to generate monthly income from short term stock ownership.

Buy-Hold-Sell Signal

Best Covered Call and Put options with strike dates based on Stock Buy signal expected time to close and strike prices based on target sell on gain, sell on loss values. Goal is to grow account value through stock price appreciation and acquiring option premium while waiting for the stock to be sold.

Determining WHEN to Buy and Sell :
Basic Fundamental Stock Price Filters

Buy Limit = 52Wk_Low + .25 x (52Wk_Hi – 52Wk_Low)

10 x (Buy Limit – Current Price)
Buy Rank = ———————————————————————————————
Buy Limit – 52Wk_Low

The algorithm uses the following technical analysis components to determine when to Buy and Sell.
1) Stock price and direction
2) 50 Day Moving Average
3) Buy Limit
4) The Groenke V price trend and momentum funnel

This process takes about 10 minutes per stock using an Intel i7 processor.
For 8,000 stocks this takes about 60 days. To do it each night takes about 4 hours using 350 servers.
Not a small task.

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