beginners corner
Archive | Covered Call Exit Strategies RSS feed for this section

Analyzing and Calculating a Multi-Leg Rolling-Down Covered Call Trade

Exit strategies for covered call writing will frequently allow us to convert losing trades to profitable ones. To corroborate this concept, a real-life example with Nike Inc. (NYSE: NKE) will be detailed.   Initial trade structuring On 6/22/2020, 200 shares of NKE was purchased at $97.72 2 July 17, 2020 $99.00 calls were sold for […]

34 Comments Continue Reading →

Automating the 20%/10% Guidelines

Position management is the 3rd required skill for achieving the highest level of option-selling success. One of the most important of the BCI protocols for covered call writing are the 20%/10% guidelines which assists us is closing short calls when those opportunities are presented. This allows us to mitigate situations when share price declines. These […]

49 Comments Continue Reading →
covered call writing calculations

Managing In-The-Money Strikes When Share Price Moves Higher

When we sell in-the-money call options, we are generating initial time-value profit that meets our stated goals plus creating downside protective of that time-value profit in the form of intrinsic -value. The disadvantage of these options is that we do not benefit from share appreciation because of our contract obligation to sell at the lower […]

30 Comments Continue Reading →

Risky Stocks Can Result in Challenging Decisions

Writing covered calls with high-volatility stocks will result in higher premiums. That’s the good news. These securities may also decline substantially below the strike price and cause option premium to pale in comparison to the share depreciation. That’s the bad news. What if these shares move up exponentially, leaving the strike deep in-the-money and we […]

30 Comments Continue Reading →

Mid-Contract Unwind Exit Strategy at the End of a Contract

Exit strategies for covered call writing and sell cash-secured puts is one of the 3-required skills that must be mastered. The mid-contract unwind (MCU) exit strategy is used for covered calls when share price moves substantially above the strike price, leaving the strike deep in-the-money. One of the characteristics of a deep ITM strike is […]

49 Comments Continue Reading →
option Greeks

20%/10% Guidelines for Covered Call Writing and Put-Selling: Same Name, Different Circumstances

Exit strategies for our covered call writing and put-selling portfolios allow us to mitigate potential losses and enhance gains to even higher levels. In my books and DVDs, I detail the 20%/10% guidelines as one of the exit strategies available to us for both strategies. Although the name is the same, the circumstances are different […]

46 Comments Continue Reading →
covered call writing exit strategies

Comparing the Cost-to-Close with Initial Trade Goal

When we enter our covered call trades, we make our stock and option selection based on our initial time-value return goal (2% – 4% for 1-month expirations in my case). If the strike moves deep in-the-money as share price accelerates, we may consider closing both legs of the trade or rolling the option out or […]

27 Comments Continue Reading →
poor man's covered call calculations

Protective Puts and The Poor Man’s Covered Call

The Poor Man’s Covered Call (PMCC) is a covered call writing-like strategy where the underlying security is a LEAPS options (1 -2 years expirations) rather than the stock itself. The technical term is a long call diagonal debit spread. Since the cost of the option is lower than the price of the stock, the return […]

21 Comments Continue Reading →
covered call writing calculations

Covered Call Writing Quiz: Evaluating a Series of Trades

Managing our covered call positions is essential to our overall option-trading success. In July 2019, KA Lau shared with me a series of questions he developed based on a real-life trade. I felt that these were excellent educational questions and will now share them with the BCI community. I added 4 more questions for a […]

17 Comments Continue Reading →
covered call writing exit strategies

Should I Unwind My Covered Call Trade 1 Week Prior to Contract Expiration?: A Real-Life Example with Alibaba Group

Covered call writing exit strategies are critical to our overall success. There are times, however, when the best action is no action at all. On July 25th 2019, Rob shared with me a successful trade he executed and was considering closing 1 week prior to the 8/2/2019 expiration. For an answer, we need to turn […]

34 Comments Continue Reading →