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Ask Alan #159 Rolling Down When Share Price Moves Up: A Valid Strategy?

Alan answers a question posed by Ed, who asks:

Alan,
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?
Thank you,
Ed

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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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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.

5 Responses to “Ask Alan #159 Rolling Down When Share Price Moves Up: A Valid Strategy?”

  1. Alan Ellman June 12, 2019 8:18 pm #

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  2. Alan June 12, 2019 9:25 pm #

    Alan,

    Thank you again for the invite and it was great to meet you in person yesterday.

    I don’t remember if you answered this question about what to do with a stock position during an earnings season month when you skip selling a covered call.

    If I have separate accts (my IRA, my Roth IRA, wife’s IRA, liquid trading acct), do you suggest up to 5 options positions for each acct? Or a total of 5 if value of accts are combined?

    I appreciate your guidance.

    Regards,
    Alan

    • Alan Ellman June 13, 2019 6:14 am #

      Alan,

      It was my pleasure meeting you in person at my NY seminar.

      If a stock is about to report earnings during the current contract period we either remove that stock from our covered call writing portfolio or (if we like the stock as a long-term holding) keep the stock and write the call after the report passes.

      Diversification and appropriate cash-allocation is critical to our success. It’s okay to be properly diversified over several different accounts but it would be more practical to keep our positions all in the same place (when possible) so that should a position be closed you can properly monitor continuation of the diversification requirements.

      Alan

      • Alan June 14, 2019 1:22 am #

        Thanks for info.

        I remember you said something about ex-dividend dates. Can you refresh my memory about what that was about? Is that about taking advantage of owning stocks so we can benefit from its dividends?

        Thanks,
        Alan

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