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There are 2 sets of calculations we must analyze when rolling our covered call options out-and-up. The first is based on making the best trading decisions at any given point in time. The second is when evaluating our overall returns for a series of trades with a particular security.
This podcast will use a real-life example with Planet Fitness, Inc. (PLNT) to highlight both sets of calculations.
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Alan,
wonderful explanation.
I am always conflicted about rolling out and up ITM successful CC trades at or near expiry.
My concerns are risking realized profit and also adding an extra month, which, if successful, will be dividing the gains by 2.
I prefer to focus my efforts on mitigating or recovering my losers, then spending energy on enhancing successful trades.
Trading monthly CCs exclusively has so many details to consider that it takes up more than 100 hours of my time each month.
Roni,
We roll-out-and-up when we are still bullish on the stock and the calculations meet are initial-time-value return goal range. We only roll if the returns on the rolling trade meets the same monthly requirement as the initial trade. If not, we don’t roll. If yes, we give it strong consideration because it will create an opportunity to double, not halve, the initial realized returns.
One way to assist us if we will roll the option is to ask ourselves if we would buy the stock today at the current price, fundamental, technical and common-sense parameters? If yes, we should consider rolling. We should not allow previous prices cloud our current decisions.
Financial benefits are gleaned from both mitigating losses and enhancing gains. Let’s get both.
Savvy investors like yourself will figure out how to manage trading positions in a more time-efficient manner. I have confidence in that.
Alan
Alan,
thank you for the detailed and instructive explanation.
You know that I am permanently in my learning period and each lesson is improving my trading skill. Also, my cash results are growing accordingly.
Have a pleasant weekend – Roni