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Analyzing a Rolling-Up Covered Call Writing Trade: A Real-Life Example with Sinclair Broadcast Group, Inc. (NASDAQ: SBGI)

Covered call writing exit strategies include rolling-out and rolling-out-and-up but what about rolling-up in the same contract month? On January 4, 2021, Court shared with me a series of trades she executed with SBGI where a covered call trade was rolled-up as share price accelerated. This article will dissect all aspects of the trades and come to several trading perspective.

 

Court’s trades

  • 12/14/2020: Buy 100 x SBGI at $28.19
  • 12/14/2020: Sell-to-open (STO) 1 x 1/15/2021 $29.00 call at $1.70
  • 1/4/2021: Buy-to-close (BTC) the $29.00 call at $3.50
  • 1/4/2021: Sell 100 shares SBGI at 32.16
  • 1/4/2021: Buy 100 x SBGI at $32.15
  • 1/4/2021: STO 1 x 1/15/2021 $32.00 call at 1.35

 

Initial calculations with the Ellman Calculator

 

SBGI: Initial Time-Value Calculations

The spreadsheet shows an initial 12-day time-value return of 6% with the possibility of an additional 2.9% should SBGI move up to the $29.00 strike price at expiration. This results in a maximum return of 8.9%.

 

Calculating the time-value cost-to-close using the “Unwind Now” tab of the Elite and Elite-Plus Calculators

 

SBGI Calculating the Time-Value Cost-To-Close

 

The time-value cost-to-close is 1.21%, lowering our max return from 8.9% to 7.7%.

 

Court’s 2nd trade in the same contract month (cost-basis is $29.00)

SBGI: 2nd Trade in the Same Contract Month

The spreadsheet shows an additional initial time-value return of 3.8%.

 

Discussion and analysis

  • The initial trade had a max return of 8.9% (6% + 2.9%). That’s where the trade stood on 1/4/2021
  • When the short call was rolled, there was no need to sell the stock for $32.16 and buy it back for $32.15
  • The calculator shows a cost-to-close of 1.2% which makes sense (8.9% – 1.2% = 7.7%)
  • The new trade depends on SBGI remaining at or above the appreciated $32.15 price
  • My preference when stock value moves up and option value approaches zero (not the case here), is to close the entire position and enter a new one where the initial time-value return is at least 1% more than the time-value cost-to-close.
  • On 1/4/2021, no action was needed.

 

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Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Hi Alan,

First, I want to thank you for your program. I’ve never had the results that your program provides. Also, I can sleep at night. Thanks, buddy.

I’ve been able to more than double my social security income using your program. I belong to a very small church and I would like to share your program with them. Many of the seniors are struggling with their finances and I think your program would be a great help. If they can make even $100 extra each month, it would make a huge difference in their lives.

Thank you for your wonderful program and for your time.

Blessings and peace,

Mark

 

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Covered Call Writing with Invesco QQQ Trust (Nasdaq: QQQ)

Multiple Applications

Weekly and monthly cash flow can be generated by selling call options against shares of large-cap technology companies. QQQ is an exchange-traded fund consisting of 100 of the largest non-financial companies listed on the Nasdaq exchange and frequently an outstanding security for option-selling.

This presentation will include the basics of covered call writing, spreadsheet calculations and the rationale for entering these trades in various market conditions.

This webinar will also detail how to implement the covered call writing strategy with QQQ in 3 types of market environments:

  • Normal-to-bull markets
  • Bear or volatile markets
  • Low interest-rate environments

VOLQ (30-day implied volatility of the Nasdaq 100 index (NDX) will be introduced and applied with real-life detailed examples.

 

 

Alan speaking at a Money Show event

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Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

20 Responses to “Analyzing a Rolling-Up Covered Call Writing Trade: A Real-Life Example with Sinclair Broadcast Group, Inc. (NASDAQ: SBGI)”

  1. Jash June 27, 2021 2:41 am #

    Alan,

    Do you recommend placing stop loss order for covered call position to avoid large loss in case stock gaps down?

    Thanks

    Jash

    • Alan Ellman June 27, 2021 7:22 am #

      Jash,

      Absolutely. Since we are in 2 positions…long stock and short call, we must first place a buy-to-close limit order on the short call to avoid being in a risky naked option position. In the BCI methodology, we base those limit orders on our 20%/10% guidelines detailed in all my books and online video courses.

      Should the 20%/10% thresholds be reached, we can roll-down, wait to re-sell the same option or sell the stock based on various scenarios also detailed in our material.

      BTC limit orders should be placed immediately after entering our covered call trades thereby partially automating the position management process.

      Alan

  2. Toshie June 27, 2021 3:49 am #

    Thank you Alan for your books. I am reading it half way through.

    I bought your Exit strategy book as well.

    Very good!!

    I would like to try to capture dividends while doing covered calls… is there an Ask Alan video? Or your YouTube video?

    Thank you

    Kind regards,

    Toshie

  3. Alan Ellman June 27, 2021 7:29 am #

    Upcoming premium member stock report reminder:

    “Over the past month we have included this notice in our report mailings and blog postings:

    The next stock report for the week ending 6/25 will be uploaded to our member site on Monday or Tuesday the 28th or 29th as members of the BCI team return from vacation.

    This relates to the first post-COVID vacation taken by members of my team”

    Every effort will be made to publish the report earlier rather than later,

    Alan

  4. Barry B June 28, 2021 2:44 am #

    Premium Members,

    This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 06/25/21.

    Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:

    http://www.youtube.com/user/BlueCollarInvestor

    On the front page of the Weekly Stock Report, we now display the Top Performing ETFs, the Top SPDR Sector Funds, and the 4 single Inverse Index Funds. They are sorted using the 1-month performances from the Wednesday night ETF report and the prices from the weekend close.

    Please make sure that you review the new feature that we’ve added…Implied Volatility or IV. This is the At The Money (ATM) Implied Volatility for all of the stocks in the report. It is located in the column to the left of the “Beta’ metric. This will now be a permanent feature of the Weekly Stock Report.

    Best,

    Barry and The Blue Collar Investor Team

    [email protected]

  5. William June 28, 2021 2:10 pm #

    Hi Alan,

    I am trying to clarify my thinking. When is it OK to choose non-bold stocks on the BCI report? In the video “Setting Up Our Covered Call Portfolios Using the BCI Stock Report and the Elit-Plus Calculator” you select at least one stock that is not listed in bold (DHI).

    I am not sure if a mistake was made.

    Thanks!

    Best regards,
    William

    • Alan Ellman June 28, 2021 2:24 pm #

      William,

      There was no mistake in the video. Non-bold stocks in the premium stock reports are always eligible. Non-bold simply means the chart technicals are mixed but still overall impressively strong. We just check the open interest on the option side to confirm eligibility.

      I use non-bold stocks all the time with consistent success.

      Alan

      • William June 28, 2021 7:12 pm #

        Hi Alan,

        Thank you for the clarification! I figured I was misunderstanding something once I saw you pick a non-bold stock in the video.

        Best regards,
        William

  6. Wayne June 29, 2021 12:17 pm #

    Alan,

    I have all of your books and cannot find info on my question. I wish to hold on to a certain stock and still write calls on this stock each month regardless of the stock price.

    Where do I find information on this strategy of keeping the stock each month ?

    Thanks,
    Wayne

  7. Jash June 29, 2021 3:22 pm #

    Alan,

    I am using Thinkorswim platform. I am trying to find in which section of your e book I can find how to place stop order for covered call, I know how to place stop on stock only posiyion.

    Thank you

    Jash

    • Barry B June 29, 2021 3:44 pm #

      Jash,

      You can place a limit order to sell the option at either the 20% exit point or the 10% exit point…depending on what part of the month you are in (first 2 weeks or the last 2 weeks).

      Barry

  8. Marek June 29, 2021 6:21 pm #

    Alan,

    I have just come across your youtube podcasts and short videos and I have become a fan of your method. I heard about the covered call writing before (in my trading I only bought calls, never actually wrote them), but your method is described with such simplicity that I think I have already watched most of your material. Next step will be to do some fundamental and technical analysis and start paper trading.

    One question though on the subject of breaking even:
    You mention that you calculate your break even point as “purchase price of the share – the total option premium”.

    From your example in one of the books:
    Cost of the stock – $128.02
    Premium from $125.00 call – $7.10
    Break Even point: $120.92 (being $128.02 – $7.10)

    However, if I want to close the position by selling the shares at $120.92, I still need to buy back the options, so at that price I am not breaking even. Am I missing something here? Is the break even point calculated as: “price from sale of the shares – the cost of buying back the option”, or is there any other better exit strategy that I did not think of. Please kindly advise.

    Regards,
    Marek

    • Alan Ellman June 30, 2021 7:19 am #

      Marek,

      The BE price point is $120.92 as stated in the book. This means that if the option expires worthless, and the share price is above the BE, we have an unrealized gain and vice-versa.

      Now, if we add one or more additional steps to the trade via exit strategy execution, the BE price point will change and it can change multiple times if we execute several position management maneuvers.

      All covered call trade exit strategies start by entering our 20%/10% BTC limit orders.

      Here is a link to an article I published related to this topic:

      https://www.thebluecollarinvestor.com/using-the-ellman-calculator-to-monitor-hitting-a-double-results/

      Alan

  9. Alan Ellman June 30, 2021 5:01 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.

    The mid-week market tone is located on page 1 of the report.

    New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.

    For your convenience, here is the link to login to the premium site:

    https://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    https://www.thebluecollarinvestor.com/membership.shtml

    Alan and the BCI team

  10. Jash July 1, 2021 1:49 am #

    Alan,

    Sorry to bother you. But what I am worried about is that if stock declines rapidly like 50% or so next day when market opens. How can we protect in this situation?

    Thank you

    Jash

  11. Jonathan July 1, 2021 2:55 am #

    Hi Alan!

    Quick question. After looking over your reports for a couple of months now and scanning thru the stocks I find quite a few of them have low OI or Volume. Thus it’s tough to enter a CC with this low liquidity.
    Do you screen for these at all? And what is your min required OI or Volume to enter such a trade when writing CCs?

    Thank you!!!
    Jonathan

    • Alan Ellman July 1, 2021 6:15 am #

      Jonathan,

      The BCI guidelines for option liquidity is: Open interest of 100 contracts or more and/or a bid-ask spread of $0.30 or less.

      Our reports:

      Stock: The 3rd column from the right (NTM OI > 100 Contr) identifies which securities meet our guidelines with a “Y” or “N” The reason we leave those with an “N” is that open interest can change and some members use our reports for buying and selling stocks without the option components. We make it easy for our members to identify which stocks meet our guidelines at the time the reports are crafted.

      ETF: All ETFs in our mid-week reports meet our guidelines.

      Blue Chip (Dow 30): All Dow 30 stocks have robust option liquidity

      Alan

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