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Ask Alan #158 – Profit-Taking Versus Rolling In-The-Money Options Early in a Contract

Alan answers a question posed by Jim M, who asks:

Alan,
When our strike price moves deep in-the-money as stock price increases early in the contract how do we decide if we should close the entire position and take profits or roll the option out-and-up? As an example, I bought CRM at $133.31 on January 3, 2019, and sold the February 15, 2019, $130.00 call option for $9.35. On January 9th the stock price was $146.36, and the option was priced at $18.20. What would you do?
Thanks for all you do,
Jim M

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It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#158, “ Profit-Taking Versus Rolling In-The-Money Options Early in a Contract”

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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 #158 – Profit-Taking Versus Rolling In-The-Money Options Early in a Contract”

  1. Alan Ellman May 8, 2019 7:11 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:

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

    Alan and the BCI team

    • Stuart May 9, 2019 4:22 am #

      Alan,

      I am a new premium member and have a question about this report. On pages 7 and 8 you list the implied volatility of the etfs and want to know how I should use this information. I’m still going through the Complete Encyclopedia so maybe the answer is in there.

      Thanks

      Stuart

      • Alan Ellman May 9, 2019 7:37 am #

        Stuart,

        Welcome to our premium member community.

        We added this feature a few years ago to show our members that not all ETFs are low-risk, an assumption made by some. On the top of page 7, highlighted in yellow, we give the IV for the S&P 500 so members can compare the projected volatility of the eligible ETFs to that of the overall market. Selections can be based on personal risk-tolerance.

        Alan

  2. Tony May 13, 2019 5:45 am #

    Hi Alan

    I’m not sure if I’ve understood this correctly.

    If we unwind the position early, we can make a net $420 (3.2%) in 6 days, and then we still have ~5 weeks of the original contract period to make some more money with the cash that’s been released. We should be able to make 2 – 3% in that time, with reasonable luck.

    Alternatively we can let the option expire, have the stock called away, and keep the (more or less guaranteed) profit of 4.6%? So probably less overall profit, but less risk and it’s also less work!

    Have I got this right?

    By the way, thanks so much for your patient and clear explanations. They are giving me the confidence to start doing this for myself.

    Kind regards
    Tony

    • Alan Ellman May 13, 2019 3:57 pm #

      Tony,

      Yes, you have made an excellent summary of the cost benefits of unwinding. The cost-to-close is 1.4%…can we make at least 1% more by contract expiration?

      Glad you’re enjoying and benefitting from being part of our BCI community.

      Alan

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