Bull Call Diagonal Spread (Poor Man’s Covered Call)
The strategy involves buying a longer term expiration ITM call and selling a nearer term expiration OTM higher strike call against it.
About Bull Calls
The bull call diagonal strategy is one where you think the price of the underlying stock will remain stable or slightly increase.
Using a bull call strategy, you buy a call option, and sell the same number of higher strike call options. The calls are for the same underlying stock, expiring at different dates.
- You buy 1 call with a longer term expiration.
- You sell 1 higher strike call.
The results from the screener are initially sorted by descending "Net $ Delta."
Options information is delayed a minimum of 15 minutes, and is updated at least once every 15-minutes through-out the day. The screener displays probability calculations based on the delayed stock price at the time the strategy is updated. The new day's options data will start populating the screener at approximately 8:55a CT.
Main features of the Screener include:
- Ability to add various filters, with hundreds of different combinations.
- Save a Screener: When you've defined filters that you want to use again, save the screener.
- Load a Saved Screener: Select a previously saved set of Screener filters to view today's results.
- View the Results using Flipcharts: Page through charts of the underlying symbols on the results page.
- Download the Results: Download up to 1000 results to a .csv file. The Download will also pull all of the data fields present on the View you use.
- Automatic Screener Emails: This option is available for Barchart Premier Members. When you save a screener, you can opt to receive the top 10, 25, or 50 results via email along with an optional .csv file of the top 1000 results. Emails can be sent at Market Open (9:00am CT), Mid-Day (12:00pm CT), End-of-Day (4:45pm CT), and Overnight (3:00am CT) Monday through Friday.
Note: When selecting the Filter View for your Screener email, a filter must identify a specific search value in order for it to be included in the email.
Filters
Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options.
Reordering Filters
Once filters are added, you may drag and drop them in the SET FILTERS tab to reorder the way they appear on the RESULTS tab (when using the Filters View). Each filter you add has the "Order" icon which is used to reposition it.
Deleting Filters
To remove a filter from your screener, click the checkbox to the left of the filter name, then click the red "Delete" button at the top of the column. You may also select all filters for deletion by clicking the checkbox at the top of the column, which selects ALL filters for deletion. You will be asked to confirm your decision to delete.
So you can focus on the best options, the screener starts by applying these default filters. Filter settings should be adjusted to match your trading requirements.
- Days to Expiration Leg1 and Leg2 (monthly and weekly expirations) is 1-60 days.
- Security Type: Stocks
- Options Volume Leg 1 and 2: for US market, must be greater than or equal to 100. For Canadian market, must be greater than or equal to 1.
- Open Interest Leg 1 and 2: for US market, must be greater than or equal to 500. For Canadian market, must be greater than or equal to 5.
- Moneyness Leg 1 is between 0% to 10%. Moneyness refers to the relative position of the underlying asset's last price to the strike price.
When a call option's Moneyness is negative, the underlying last price is less than the strike price; when positive, the underlying last price is greater than the strike price.Â
When a put option's Moneyness is negative, the underlying last price is greater than the strike price; when positive, the underlying last price is less than the strike price. - Moneyness Leg 2 is between -25% to -6%.
- The Leg 1 Bid Price must be greater than 0.05
- The Leg 2 Ask Price must be greater than 0.05
In addition:
- The stock price must be greater or equal to 1.00.
- Max Profit must be greater than $0.00.
- The option must not be a "restricted" option (the option cannot be based on a split stock).
Note: Non-standard or "restricted" options (options quotes marked with an asterisk * after the strike price, and found on an individual symbol's options page) are automatically removed from the screener. A "restricted option" is typically created after spin-offs or mergers, and is not tradeable.
Probability Calculation
We take the underlying stock price (l), the target price (b), days to expiration (t) and the implied volatility (v) to calculate probability:
Probability Above = 1-NORMSDIST (LN(b / l) / (v*SQRT (t / 365)))
Probability Below = NORMSDIST (LN (b / l) / (v*SQRT(t / 365)))
b = target price
l = underlying last price
v = implied volatility
t = days to expiration
Bull Call Spread Break Even: Probability of the underlying trading ABOVE the break even point at expiration and profiting from the trade.
Bull Call Spread Max Profit: Probability of the underling expiring at or above the short call strike price at expiration.
Maximum Annual Percent Return: Available as a separate filter to add to the screener, the calculation is as follows:
Max Ann %Rtn = ( ( ( (StrikeDiff - MaxProfit) / MaxProfit ) / DTE ) * 365 ) * 100.0
where
Strike Diff = [Leg2 Strike - Leg1 Strike]
Max Profit = [Leg1 Ask - Leg2 Bid]
DTE = Days till Option Expiration.
Note: The calculation is annualized by dividing the result by 365 (days).
Views
The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you've added to the screener.
Main View
- Symbol - the underlying equity. Clicking on the symbol will take you to the current quote page.
- Price~Â - the delayed stock price at the time the strategy is updated for the underlying equity.
- Expiration Leg 1 - the expiration date of the Leg 1 option.
- Leg1 (Buy) Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg1 Ask - the premium to buy the Leg 1 option.
- Expiration Leg2 - the expiration date of the Leg 2 option.
- Leg2 (Sell) Strike - the price at which the underlying security can be bought if the option is exercised.
- Leg2 Bid - the premium to sell the Leg 2 option
- Net Debit or Max Loss - the potential loss of this strategy. Max Loss is: Leg1 Ask (ITM Call) - Leg2 Bid (OTM Call)
- Max Profit - Max Profit = Strike Difference - Net Debit (if closed at the first expiration)
- Payout% - Payout Ratio = (Strike Difference - Net Debit) / Net Debit (if closed at the first expiration)
- Leg1 Delta - Delta measures the amount an option price will change as a result of a $1.00 price change of the underlying security.
- Leg2 Delta - Delta measures the amount an option price will change as a result of a $1.00 price change of the underlying security.
- Net $ Delta -
- a. Leg1 Ask + ((Leg2 Strike - Security Price) * Leg1 Delta)
- b. Leg2 Bid + ((Leg2 Strike - Security Price) * Leg2 Delta)
- Net $Delta = Step a. - Step b. - Net Debit (Leg1 Ask - Leg2 Bid)
- Net $Theta - the time decay. Net $Theta =
- Step 1: Calculate theta loss per leg:
a. Leg2 theta loss = {Leg2 theta * Leg2 DTE}
b. Leg1 theta loss = {Leg1 theta * Leg2 DTE}
- Step 2: Calculate decay legs by theta loss
a. Leg2 decay = Leg2 Bid - Leg2 theta loss
b. Leg1 decay = Leg1 Ask - Leg1 theta loss
- Step 3: Calculate the spread using the new bid and ask values
a. Theta spread = Leg1 decay - Leg2 decay
(spread can not be wider than Leg1 decay)
Net $Theta = Theta spread - Net Debit (Leg1 Ask - Leg2 Bid)
Dividend & Earnings View
- Dividend - the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock's price is lowered by the amount of the dividend that was just paid.
- Dividend Ex-Date - the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
- Earnings Date - The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.
