Book Review : Selling Cash-Secured Puts by Alan Ellman

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Book Review

Alan’s Option System

  1. Circular PCP Strategy (see below diagram)Cash_secured_put_CC_Writing-620x530
  2. DTE : Monthly
  3. Strike Price : Sell Put ATM or Sell Call NTM
  4. Avoid Earning Period
  5. Diversification : Min 5 different stocks
  6. Position Sizing  : Total Capital / diverfication of stocks (eg $50k/5 = $10k per different stocks)
  7. Cut loss if price drop by more than 3% of SP
  8. OI  > 100
  9. Volume > 250k
  10. bid-ask spread < $0.30
  11. FA, TA and common sense principle

 

Tools or Website he used

FA Stocks screener
www.investors.com
money.msn.com/investing/stockscouter-stock-ratings.aspx
finviz.com
cboe.com/contractadjustment

 

TA
http://www.stockcharts.com

EMA 20d and 100d, golden and dead cross entry for monthly options with confirmation

MACD(12,26,9) and MACD Histogram (divergence, strength and early warning of reversal)

Stochastic Oscillator (14,3) triggered when crosses the 20% and 80% second time

Use support and resistance and Simple Trendline

 

Common Sense principle

earningswhispers.com

www.thebluecollarinvestor.com/blog

 

Exit Strategies

If price drop by >3% of SP  – exit position with loss

If price NTM – start rolling over

If premium drop to 20% or 10% initial close position to take profit

 

ETF Selection

Past 3 months out-performed S&P

RSI >60

Average Volume>250K

OI>100

Avoid lerverage ETF (ie no 2x or 3x)

IV for entry

onlinewsj.com/public/quotes/etf_screener.html

www.marketwatch.com/tools/etfs/html-adv-screener.asp  ( join member to access  the screener)

 

In Summary

  1. Identify your goal:  Income generation,  Buy Share @ a discount,  Use with P-C-P strategy
  2. Stock and ETF selection: Fundamental Analysis, Technical Analysis, Common sense principle
  3. Strike price selection: Overall goal, Market Assessment, Chart technical, Personal Risk tolerance
  4. Trade execution
  5. Position Management
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