Comments on: Rolling Up in the Same Contract Month: Evaluating a Real-Life Trade https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/ Learn how to invest by selling stock options. Mon, 19 Oct 2015 19:51:07 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-24595 Mon, 19 Oct 2015 19:51:07 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-24595 In reply to Judith Growsen.

Judith,

You are astute enough to answer your own question. A large spread may present a problem getting a favorable price execution if an option needs to be bought back to institute an exit strategy.

Larger spreads are indicative of low option liquidity and therefore we have less leverage when trying to negotiate better prices. Remember to leverage the “Show or Fill Rule” when spreads are greater than $0.15.

The $0.30 guideline just gives us as idea as to when the spread is becoming a concern but that, too, is partially dependent of the amount of the total premium. In addition to watching the spread, also keep an eye on the open interest (I like to see at least 100 contracts).

Alan

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By: Judith Growsen https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-24594 Mon, 19 Oct 2015 19:08:11 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-24594 Hi Alan,

I’m curious to learn more about the Bid-Ask spread recommendation of $0.30 or less.

Specifically, I was wondering, the following:

What does it mean to me as the spread widens?

Why should I avoid large spreads when selling a call option?

* I know that the $0.30 is a recommendation from reading your books, so I am basing the above questions with spreads that start to be like $0.50 on up.

From reading your books, I know that a large spread will make it more expensive for me to buy back an option if I need to.

Thank You

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-23761 Fri, 31 Jul 2015 20:57:34 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-23761 In reply to Christina.

Christina,

When I own a stock that I want to hold through an earnings report, I will not write the call until after the event. If I inadvertently sell a call before the report and then realize the situation, I will buy back the call prior to that report and re-sell it after the report. This will allow for full share appreciation from a positive surprise which is the expectation if we decide to hold through that report.

Alan

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By: Christina https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-23760 Fri, 31 Jul 2015 20:52:33 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-23760 Hi Alan,

I have a question for you, I have a stock is earning coming up on 5th Aug next week I have a covered with the stock my intention to keep the stock, shall I close the covered call before earning?

Thanks in advance.
Christina

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-23758 Fri, 31 Jul 2015 15:39:40 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-23758 In reply to Tim.

Tim,

On quick glance, here are a few (not necessarily recommendations…as of 11:30 AM Friday):

1- ALXN: $185 strike @ 6.40
2- FB: $94.50 strike @ $3.20
3- ELLI- $75 strike @ $4,80
4- CELG- $131 strike @ $3.70

I am currently out-of-town with not much time to scour our list but I’m sure there are more. Keep in mind that there are now 3 weeks remaining in the August contracts and theta is rearing its ugly head depreciating the time value of our premiums. As a result we will not be going too far in-the-money and still generate a 2%, 3-week return…34% annualized. Use the multiple tab of the Ellman Calculator to generate these stats.

Alan

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By: Tim https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-23745 Thu, 30 Jul 2015 16:35:18 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-23745 Have any of you found stocks this month with decent returns for ITM? As in around 2%.

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-up-in-the-same-contract-month-evaluating-a-real-life-trade/#comment-23742 Wed, 29 Jul 2015 22:04:05 +0000 http://www.thebluecollarinvestor.com/?p=12625#comment-23742 In reply to Adrian.

Here is a chart of LOCK showing the price decline Adrian alluded to. Please note that this stock does not currently meet BCI requirements. The reason for the dramatic price decline was related to a securities fraud case filed on the day of the decline. CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

Alan

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