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Exit strategies will elevate our covered call writing results to the highest possible levels. This podcast will highlight the “hitting a double” exit strategy which seeks to generate 2 income streams in the same contract month with the same investment. It also demonstrates how the multiple tabs of the Ellman Calculator can monitor these trades.
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Hi Alan,
Thanks so much for this podcast. 2 questions:
At minute 6:35, could you explain the net option credit of $2.60 in the third row of the multiple tab? The first row is $2, which is your initial credit. The second row is $1.60, because that’s $2 in new credit minus $0.40 to buy back. For the third row, you said the new credit is $1, so shouldn’t the third row say $0.60 ($1 – $0.40) instead of $2.60?
Question 2 –
Does the 20%/10% rule still apply in subsequent trades when hitting doubles and triples? In other words, how do you when to buy back the 2nd option sold in the same month, when it hits 20%/10% of the **1st** option’s original price?
Thanks again!!
Larry,
1. The $2.60 represents the cumulative option credit once the final option was sold: $2.00 -$0.40 + $1.00 = $2.60.
2. The 20%/10% guidelines apply to the last option premium, in this case, $1.00. We would set up BTC limit orders of either $0.20 or $0.10 depending on the time remaining until expiration. We always update our management decisions based on the most current information.
Alan