Thank you for the response. I thought so but wanted to hear it from the sensei. 

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Bob,

The BCI PMCC trade initialization formula I developed is intended for the initial trade setup only. It ensures that, if soon after trade entry, share price accelerates exponentially and we are forced to close both legs of the trade, it will be closed at a profit.

This formula is inherent in the BCI PMCC Calculator and will result in a bold red “YES” or “NO”, guiding as to whether this is an appropriate initial PMCC trade.

Once a PMCC trade is executed, the short call leg of the trade is the main focus for trade management (exit strategies), until we are forced to make rolling decisions on the long LEAPS options.

You’re good to go at this point and glad you’re making good money.

Alan

I have executed a PMCC on SPCX initiating on 7/21. So far I have booked over 12% on the investment into the LEAP expiring 12/18/28. All good.

My question- when I plug in current numbers of the entire transaction into the PMCC calculator the trade does NOT meet initial structuring criteria.

Is there any rule if this happens during the duration of the short call trade?

I have continued to roll out and up on the original transaction to make the12% and my expectation is I will continue to do so to keep this trade a winning one.

Your thoughts please.

thanks

Bob

So pleased to learn of your recent success.

In the BCI methodology, we rarely sell ITM CSPs. If we are bullish on the stock, buying the shares and setting up a potential 2nd income stream by selling OTM covered calls can be a more profitable path to take.

We can sell an ITM CSP when we want to purchase a stock at a discount as soon as possible.

Let’s get to the math:

If a stock is trading at $45 and we sell a $47 CSP for $3, the initial return is $3/$44 (broker will require setting aside $47 – $3 or $44) to “secure” the put trade. This is a 6.8% initial return which will be a realized return if share price moves above the $47 strike at expiration.

If share price remains below the $47 at expiration, there will be an unrealized share loss, unrealized until shares are sold. To calculate the final unrealized return at expiration, deduct the difference between current price and $47 and that will represent an unrealized debit.

Let’s say the stock closes at $46 at expiration, we have an option credit of $3 and an unrealized share loss of $1 (buy at $47 while stock trades at $46). This leaves a net credit of $2 ($3 – $1). $2/$44 = an unrealized gain of 4.5%

The TMC can do the math for us.

Alan

It’s been a very successful week for me with IBKR, PATH, ZETA and a few more except with B,

I rolled my $47 CSP down and out today from 8/28 closing to 9/11 to the $46 strike and collected a net credit. B was around $46.50 at the time, so the new put was OTM and the premium was all time value.

This made me wonder: what if instead I had rolled to an ITM $47 put? Part of that premium would be intrinsic value. If B later rises above $47 and the put expires worthless, do I effectively earn both the intrinsic and time value?

But, if B stays below $47 and I am assigned, how should I look at that intrinsic value?

With covered calls, I understand intrinsic value because if the call expires ITM and the shares are sold, part of the premium is offset by agreeing to sell the shares below their current value. But with a put, I’m having a harder time getting my head around it.

And generally, would you recommend selling an ITM CSP, or does that only make sense when you are very bullish on the stock?

Thank you,
Idan

Thanks much…this conforms with my thinking too but I’ll ask my tax guy!

Much appreciated!
Rich