Most options traders including covered call writers are familiar with exchange-traded funds (ETFs) and many trade options on these securities.
This is a security that tracks an index, a commodity or a basket of assets but trades like a stock on an exchange. Note that there is no trading taking place in the underlying index but rather has a calculated value that exists on paper only. These are professionally managed, diversified portfolios that do not trade like stocks and do not have options associated with them. The holder of an ETF option has the right but not the obligation to purchase our ETF shares whereas the holder of an index option does not.
When options on indexes are sold, European Style Options are generally used (OEX- S&P 100 Index Options are an exception). ETF options are settled based on the closing price as of 4 PM EST on expiration Friday (or the Thursday before if Friday is an exchange-recognized holiday).
Trading volume can be light on many ETFs and therefore should be evaluated before entering a covered call position. For the week, the S&P 500 remained unchanged for a year-to-date return of8%, including dividends. Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor premium member site and is available for download in the “Reports” section. If a report meets expectations and offers no unexpected guidance there may be no unusual price volatility in which case the stock can be considered immediately after the report.

We re-screen our database of stocks + the IBD 50 each week for our members for situations when exit strategies are used mid-contract and positions are closed.
This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. It can be bought and sold throughout the trading day and has price fluctuations as do individual stocks. Instead, the holder of an index option has the right to demand the equivalent cash value from the option seller (that’s us) upon exercise of the option. Index options can have an AM Settlement (based on opening prices of the day of exercise) or PM Settlement (based on closing prices on the day of exercise). Understanding the difference between American and European Style Options as well as between ETFs and Index Options will only make us better investors as we fulfill one of our mission statements…Education is Power. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. Therefore, I establish my positions near expiration Friday of the ending contracts (mainly when I’m rolling my options) or the first few days of the new contracts. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates. The purpose of this article is to detail the differences between ETF option trading and index option trading. For European-style index option contracts the last trading day will be the business day (generally a Thursday) preceding the day on which the exercise settlement value is calculated (generally the third Friday of the month unless that day is a holiday). The reason is that we are undertaking a short-term obligation and theta (time value erosion of the option premiums) is logarithmic, not linear.

Many investors and traders believe options to be very risky and weeklies to be even more risky. Many ETFs have options associated with them and the BCI team provides a weekly ETF Report for our Premium Members showing 15 – 25 eligible ETFs for covered call writing. Eric Wish who teaches a stock investment class to finance honors students at The University of Maryland. Therefore, the longer we wait into the contract the lower our returns will be and premium will substantially deteriorate after the first week of a 4-week contract. I like this Index a lot and will publish the type of signal it is alerting us to each week. Jul 31, 2011 When trading weekly options, follow these strategy adjustments for safer, more successful trading. Find out why trading weekly options can be extremely lucrative and well-suited for day traders. The two main goals for trading weekly options are price appreciation and receiving weekly income from the sale of weekly.

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