Can We Generate Significant Profits Selling Weekly Covered Calls During a 4-Day Trading Week? – May 6, 2024
Some members of our BCI community have expressed to me that meaningful income cannot be generated selling weekly covered call or put options during a holiday-shortened trading week. This article is designed to debunk that hypothesis, using a real-life example taken from one of my (CEO) portfolios.
What is the CEO strategy?
The CEO Strategy is a streamlined approach to covered call writing, where only the 11 Select Sector SPDRs (exchange-traded funds or ETFs) are used with limited exit strategy executions. In this article, I used the 5 best-preforming Select Sector SPDRs during the trading week from 12/26/2023 – 12/29/2023, 4-days.
Best-performing Select Sector SPDRs on 12/26/2023
- Spdr Real-Estate (XLRE
- Spdr Materials (XLB)
- Spdr Financials (XLF)
- Spdr Consumer Discretionary (XLY)
- Spdr Industrials (XLI)
Asset & cash allocation for this $100k portfolio based on the CEO spreadsheets (contracts sold)
- XLRE: 6 (monthly contracts, no weekly contracts for XLRE)
- XLB: 2
- XLF: 5
- XLY: 1
- XLI: 2
Screenshot from brokerage account showing final option sales (monthly XLRE divided by 4)
- 6 x XLRE contracts were sold at $0.36. I converted that monthly stats to $0.09 to simulate a weekly option ($54.00)
- 2 x XLB contracts were sold at $0.42 ($84.00)
- 5 x XLF contracts were sold at $0.05 ($25.00)
- 1 x XLY contract was sold at $0.37 ($37.00)
- 2 x XLI contracts were sold at $0.22 ($44.00)
Initial 4-day premium calculations based on a $100k portfolio
The total cash generated from the option sales was $244.00. Based on an investment of $100k (some of this was cash reserved for potential exit strategy executions), calculated to 0.24%. This annualizes to 12.7% based on a 52-week return. Since this was actually a 4-day return, the annualized expected initial return would be higher considering most weeks include 5-trading days.
Also, had individual stocks been utilized, greater returns would be expected since exchange-traded funds, generally, have lower implied volatility (and therefore lower option premiums) than individual securities.
Discussion
This article represents a real-life example of how, even during a holiday-shortened trading week, meaningful income can be generated using 4-day weekly options. The BCI methodology is all about hitting singles and doubles and not only focusing on grand slam home runs. Now, let’s all get on base.
Author: Alan Ellman