Alan answers a question posed by Ed, who asks:
I recently sold an in-the-money (ITM) strike and share price shot up way past the sum of the ITM option and the strike price of the option. I then bought back the ITM option and sold another ITM option one increment less in strike price than the one I just bought back.
This does 2 things:
1. I do not lose money on the option
2. The total stock price + option premiums will be closer to the current market value of the stock and therefore I will make more money than not acting.
What is your opinion of this strategy?
It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#159, “ Rolling Down When Share Price Moves Up: A Valid Strategy?”
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