Enhancing Gains with the Mid-Contract Unwind Exit Strategy: The BCI Trade Management Calculator in Action + Free Webinar Registration Link


After entering our covered call trades and share price rises substantially, there are often opportunities to generate a 2nd inc0me stream by closing both legs of the original trade and entering a new one with a different underlying security. In the BCI methodology, this is known as the Mid-Contract Unwind (MCU) exit strategy. This article will highlight an example of this strategy using Nucor Corp. (NYSE: NUE). The BCI Trade Management Calculator will show trade entry, initial calculations, trade adjustments and final results.

 

MCU trade overview

  • 7/25/2021: Buy 100 x NUE at $96.87
  • 7/25/2021: STO the 8/20/2021 $95.00 ITM call at $4.90
  • 8/6/2021: BTC the 8/20/2021 $95.00 call at $9.70
  • 8/6/2021: Sell 100 x NUE at $104.28
  • 8/6/2021: With 14 days remaining to contract expiration, the cash available from selling the NUE shares is now available for a 2nd income stream in the same contract cycle

 

BCI Trade Management Calculator: NUE trade entry

 

NUE: Initial Trade Entries

 

BCI Trade Management Calculator: NUE initial calculations

 

NUE: Initial Covered Call Calculations

 

The spreadsheet shows an initial time-value return of 3.20%. Since the option sold was in-the-money, no additional profit can be gleaned from share appreciation.

 

BCI Trade Management Calculator: NUE adjustment entries

 

NUE: MCU Trade Adjustment Entries

 

BCI Trade Management Calculator: NUE final results

 

NUE: Final Returns After Trade Adjustments

The final trade result after trade adjustments is 2.75%

 

Discussion

The MCU exit strategy resulted in a time-value cost-to-close of 0.45% (3.20% – 2.75%). We use this exit strategy when we can generate at least 1% more than this time-value cost-to-close or 1.45% or higher, thereby initiating a 2nd income stream with a similar cash investment. Note that we must have cash available in our portfolios to close our short option positions when exit strategy opportunities are available.

 

Information on the BCI Trade Management Calculator

 

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Selling Cash-Secured Puts 

Exit Strategy Choices After Exercise of Cash-Secured Puts 

Selling cash-secured puts is a low-risk option-selling strategy which generates weekly or monthly cash flow by agreeing to buy shares at a price we determine, by a date we determine. In return for undertaking this obligation, we are paid a cash premium. We only sell puts on shares we would otherwise want to own and, if exercised, and shares are put to us, they are purchased at a discount from the price when the put trade was initiated.

This presentation includes an introduction to option basics, defines selling cash-secured puts and provides real-life examples. The focus of the webinar details the steps available to put sellers should the put be exercised, and we now own the discounted stock or ETF shares. The seminar includes a discussion of the PCP (put-call-put or wheel) Strategy and the Stock Repair Strategy among other exit strategy opportunities.

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Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:

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Image and article originally from www.thebluecollarinvestor.com. Read the original article here.