When using high implied volatility (IV) stocks and ETFs in our covered call and cash-secured put portfolios, there are tremendous opportunities to score significant returns, but with significant risks to the downside. We must be particularly focused on appropriate strike price selection to ensure maximum benefits while minimizing the associated risks.
Are we bullish or bearish on the overall market and what is our personal risk-tolerance?
If we have a favorable market outlook, we will prioritize slightly out-of-the-money (OTM) call and put strikes. These selections should align with our pre-stated initial time-value return goal range (2% – 4% monthly initial return goal range, for me). In strong bull markets, we may opt to use deeper OTM call strikes and allow for greater share price acceleration.
If the market direction is bearish, volatile or uncertain, we may consider in-the-money (ITM) call strikes and deep OTM puts.
Real-life covered call example with Shopify Inc. (Nasdaq: SHOP): 9/30/2025 – 10/24/2025
- On 9/30/2025, SHOP was trading at $146.63
- The at-the-money (ATM) IV = 46% (more than triple that of the S&P 500 at that time)
- Call strikes:
- The $149.00 call strike has a bid price of $6.00 (traditional)
- The $126.00 deep ITM strike has a bid price of $22.00 (defensive)
Initial covered call calculations Using the BCI Trade Management Calculator (TMC)
- The initial 25-day returns for the traditional OTM call is 4.09%, 59.74% annualized (brown cells) with 1.62% of upside potential (Purple cell).
- The initial 25-day returns for the defensive ITM call is 1.09%, 15.87% annualized (pink cells) with 14.07% of downside protection (of that time-value profit- blue cell).
- When selling multiple contracts, we can sell some of each depending on if we were more bullish or bearish.
Real-life cash-secured put example with Shopify Inc. (Nasdaq: SHOP): 9/30/2025 – 10/24/2025
- On 9/30/2025, SHOP was trading at $146.63
- The at-the-money (ATM) IV = 46% (more than triple that of the S&P 500 at that time)
- Put strikes:
- The $142.00 put strike has a bid price of $3.85 (traditional)
- The $130.00 deep OTM put strike has a bid price of $1.11 (defensive)
Initial cash-secured put calculations Using the BCI Trade Management Calculator (TMC)
- The initial 25-day returns for the traditional OTM call is 2.79%, 40.69% annualized (brown cells) with 5.78% protection to breakeven (purple cell).
- The initial 25-day returns for the defensive deep OTM call is 0.86%, 12.57% annualized (pink cells) with 12.10% protection to breakeven (blue cell).
- When selling multiple contracts, we can sell some of each depending on if we were more bullish or bearish.
Discussion
High IV stocks and ETFs can be utilized in a defensive manner by focusing on strike selection. By combining overall market assessment, pre-stated initial time-value return goal range and personal risk tolerance, our trades can be crafted to maximize returns while also factoring in capital preservation. Of course, our exit strategy arsenal should always be available to mitigate losses and enhance gains.
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Upcoming events
1. Palm Beach Traders Club
March 10, 2026
6:30 PM – 8 Pm ET
Private Investment Club / guests are welcome (free)
Wine-tasting event follows for those interested.
2. Long Island Stock Investors Meetup Group: Part II
Thursday March12, 2026
7:30 PM ET – 9:00 PM ET
Ultra-Low-Risk Approaches to Covered Call Writing & Selling Cash-Secured Puts
Introducing Our Latest Products, Creating New Investment Opportunities
3. Hollywood Florida Money Show
April 10, 2026
11:40 AM – 12:25 PM
The Put-Call-Put (PCP) or Wheel Strategy
Using Both Covered Call Writing and Put-Selling to Generate Monthly Cash Flow
Selling stock options is a proven way to lower our cost-basis and beat the market on a consistent basis. Two such low-risk strategies are covered call writing and selling cash-secured puts. This presentation will detail how to incorporate both strategies into one multi-tiered option-selling strategy where we either generate cash-flow or buy a stock at a discount. I refer to this as the Put-Call-Put (PCP) Strategy, also referred to as the wheel strategy.
The basics and pros and cons of low-risk option-selling strategies will be discussed as well as an analysis of a real-life example and introduction into the BCI Trade Management Calculator (TMC). This seminar is appropriate for those who look to generate modest, but consistent, returns which will enable us to potentially beat the market on a consistent basis while focusing on capital preservation.
4. Young Investor’s Club at The University of Central Florida
April 16, 2026
Private student investment club.
5. Sarasota Investment Group
Portfolio Overwriting: A Form of Covered Call Writing
Wednesday April 22, 2026
Details to follow.
6. BCI Educational Webinar #10: The Put-Call-Put (PCP) or “Wheel Strategy”
Thursday May 14, 2026, at 8 PM ET
Using both covered call writing & cash-secured puts in a multi-tiered option selling strategy. A 68-day real-life example taken from one of Alan’s portfolios will be analyzed.
BONUS: Barry will share a real-life credit spread trade using our BCI Conservative Credit Spread Management System.
Discount coupons and a live Q&A session will follow the presentation.
7. Orlando Money Show
October 5 – 7, 2026
Details to follow.
