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Ask Alan #151 – Rolling Out-And-Up Covered Call Trade Decisions

Alan answers a question posed by Karl, who asks:

I bought FIVE for $76.19 on May 17th and sold the June $75 call option for $2.86. As expiration is approaching the stock moved all the way up to $102.09 and I am considering rolling out-and-up to the July $105 strike. Is this a good strike to consider as I am still bullish on this stock but concerned about the paid-up risk of buying back the option ($27.50).
Thank you.
Karl

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It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#151, “ Rolling Out-And-Up Covered Call Trade Decisions”

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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.

7 Responses to “Ask Alan #151 – Rolling Out-And-Up Covered Call Trade Decisions”

  1. Marsha October 10, 2018 11:17 am #

    Bought back almost all my options. Now all we need is a market turnaround.

    • Alan Ellman October 10, 2018 5:44 pm #

      BCI members:

      This post from Marsha is typical of the dozens of emails I received this week (many today). By closing our short calls, we are in a position to mitigate a portion of our losses if the market rebounds in the next 2 days.

      Although these are difficult periods to be in the stock market, the option sales have lowered our cost-basis to help whether the decline. I am waiting to see how the market responds before making decisions for the November contracts. The status of our trade war with China in this rising interest rate market will have a lot to do with this short-term volatility.

      Non-emotional decisions are critical when we have market extremes (either way), even short-term extremes.

      Alan

      • Roni October 11, 2018 12:16 pm #

        Hi Alan,

        thank you for your supportive words.

        No panic here.

        My paper losses are considerable, but my plan is to go on with damage control, and work consistently to recover.

        We came down by the elevator, and now we must take the stairs to get back up to where we were.

        Roni

    • Roni October 11, 2018 12:05 pm #

      Hello Marsha,

      you are not alone.

      I have bought back 10 of my 11 CC contracts, and waiting for a possible rebound. Who knows?

      On the other hand, we must not wait too long before the losses become unbareable.

      Therefore I will begin to liquidate the worst ones, and or sell lower CCs against some of the others, plus maybe I will consider taking the strongest ones through the upcoming earnings reports, which I beleive will be positive due to the strong American economy in the recent quarter.

      Good luck – Roni

  2. Alan Ellman October 10, 2018 5:37 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

    NOT A PREMIUM MEMBER? Check out this link:

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    Alan and the BCI team

  3. Stephen October 11, 2018 1:33 pm #

    Alan, found you and your site, and was already looking at the covered call strategy. I would like to ask a few questions of you however.

    As most of my funds are in registered accounts that are only eligible for level 2 trading, I don’t believe I can do a cash secured put during a bear market. What other strategy (other than just buying puts) can be implemented?

    Going away on holidays in a week and am looking to getting started with you then. Looking to purchase your ”
    Complete Encyclopedia + DVD Series” then. I understand I will have to trade the US markets.

    Thanks much!

    Stephen

    • Alan Ellman October 11, 2018 4:13 pm #

      Stephen,

      Welcome to our BCI community.

      First, I would re-check to see if you are permitted to buy protective puts. Most brokers do. Let’s assume that you cannot use any form of put-buying or selling. Here are a few ideas:

      1. Sell in-the-money call options where the intrinsic value of the premium results in greater protection to the downside.

      2. Use lower implied volatility stocks and exchange-traded funds that are out-performing the overall bear market.

      3. Set buy-to-close limit orders on the options using our 20%/10% guidelines should those opportunities arise.

      4. Consider the best-performing SelectSector SPDRs and rotate as performance changes.

      We are currently experiencing a volatile decline in market value and this, although an aberration, does pop up from time-to-time so mastering the 3-required skills (stock selection, option selection and position management) are critical to mitigating losses and enhancing gains when the market turns around.

      Alan

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