Premium Stock Reports: Final Selections for Our Option-Selling Portfolios

07/07/2015 8:00 am EST

Focus: OPTIONS

Alan Ellman

President, The Blue Collar Investor Corp.

Using a recent report to illustrate his point, Alan Ellman, of TheBlueCollarInvestor.com, shares an example of one way to reduce the file down to thirteen candidates, which can then be evaluated for option returns.

The Blue Collar Premium Stock reports list eligible candidates for both covered call writing and selling cash secured puts. These files historically contain between forty to sixty securities and our members have developed many innovative ways to make final decisions as to which securities will be included in the current month’s portfolio. In this article, I will use the report dated June 19, 2015, which was published at the start of the July, 2015 contract month. The list consists of sixty-nine candidates that have passed our rigorous fundamental, technical, and common sense screens. I will demonstrate an example of one way to reduce this file down to thirteen candidates, which can then be evaluated for option returns.

Overview of the June 19, 2015 Premium Stock Report (top portion shown).

chart
Click to Enlarge

Color key:

Yellow: Upcoming earnings reports during the July contracts and therefore not eligible until the reports pass
Pink: Eligible candidates in bold showing the strongest stocks from a technical perspective
Brown: Highlights candidates with current industry rank of “A”

Screens used in this hypothetical example

  • Stocks in bold
  • Industry rank of “A”
  • Adequate open interest (second column from right)
  • Price-per-share less than $100.00 (second column from left)
  • Avoiding earnings reports (yellow field)

Screen results showing industry and stock

Medical
ACHC
ICLR
AMSG
CBM
ZTS

Apparel
HBI
GIII

Software
SNCR
CRM

Consumer
LEG

Finance
SC

Building
TREX

Business Services
EPAM

Status Update

To reduce our file of sixty-nine eligible candidates down to thirteen will take the average retail investor between fifteen to twenty minutes and only needs to be done once a month. The next step is to check the option chains to make sure we can locate an appropriate number of stocks to populate our portfolio needs. For example, a $50,000 portfolio will have five stocks while a $100,000 portfolio will have between seven to ten securities. Many of us may have rolled options from the previous contract month and may need only a few stocks to fully populate our portfolios. The calculations and ensuing trade executions will normally take between one to two hours depending on investor experience and portfolio size. Once again, this second aspect is accomplished once a month. From there, we are in position management mode, which can be automated by setting up limit orders based on our 20%/10% guidelines.

By Alan Ellman of TheBlueCollarInvestor.com

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