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Ask Alan #142 – “Evaluating the Cost-To-Close Prior to Contract Expiration”

Alan answers a question posed by Andrew, who asks:

I purchased UCTT for $27.90 and wrote an October 1-month $30 call for $0.77. The stock is now trading at $31.62 and the “ask” for the call is $2.50. Should I unwind or is it too costly?
Thanks,
Andrew

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It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#142, “Evaluating the Cost-To-Close Prior to Contract Expiration”

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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.

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5 Responses to “Ask Alan #142 – “Evaluating the Cost-To-Close Prior to Contract Expiration””

  1. Alan Ellman January 10, 2018 5:22 pm #

    Premium members:

    This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates.

    New members check out the video user guide located above the recent reports.

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

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

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    Alan and the BCI team

  2. Alan R January 12, 2018 7:36 am #

    Alan, I’ve enjoyed your u-tube videos but I have one question.

    You mention a risk selling covered calls at strike price if the stock goes down. I don’t understand this, as no one would execute the strike if they could buy the stock on the market for less… Yes, we lose on the stock itself, but the call price remains in our pocket, right?

    Worst case is the loss on the stock itself.. Correct?

    Alan R

    • Alan Ellman January 12, 2018 4:57 pm #

      Alan,

      You’re on the right track. The risk is in the stock price declining as we do keep the premium. If share price declines more than the premium received, we can lose money. The fact that we are lowering cost basis when selling covered calls is the reason our chances of successful trades are enhanced.

      Alan

  3. Alan Ellman January 13, 2018 7:09 am #

    New chart image:

    I have asked my team to change the image shown in this video from 2:05 – 2:50 to the (correct) image shown below. Thanks to Jim for pointing this out to me.

    CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG

    Alan

  4. roni January 13, 2018 9:28 am #

    Hi Alan,

    great explanation.

    I had exactly the same case yesterday:
    Bought 400 ATVI shares @ 64.47 on 12/21/2017.
    Sold at same time 4 ATVI 01/19/2018 65.00 C for 1.56
    Decided to unwind trade on 01/12/18, BTC calls for 5.56 (my limit), sold shares @ 70.51.

    Total gain 816.00 = 3.2%, annualized aprox. 38% :-).

    Potential gain 836.00 if I had waited for expiry in 7 days.
    Not worth the risk.

    Roni

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