After entering our covered call writing trades, we immediately enter our 20% buy-to-close (BTC) limit orders. This will automate the process to close our short calls in the first half of a monthly contract should share price decline significantly. This article will highlight such an opportunity that occurred with Procter & Gamble Company (NYSE: PG) in May 2020 for the June contracts

 

PG trades

  • 5/18/2020: 100 PG purchased at $116.21
  • 5/18/2020: 1 x 6/19/2020 $117.00 call sold at $1.40
  • 5/26/2020: 1 x 6/19/2020 $117.00 call closed at $0.30 (meeting the 20% threshold)
  • 5/28/2020″ 1 x 6/19/2020 $117.00 call was re-sold at $1.90

 

PG price chart with the classic V-shaped  “hitting a double” pattern

 

PG Price Chart in May 2020

 

PG option chart with the classic V-shaped “hitting a double” pattern

PG Option Chart for the $117.00 Call

 

“Hitting a Double” calculations with the multiple tab of the Ellman Calculator

 

PG Exit Strategy Calculations

 

The initial trade structuring was for an initial time-value return of 1.2% with an additional 0.7% as upside potential for a total 1-month maximum return of 1.9%. With the BTC limit order executed, the initial return was reduced to 0.9%. When the $117.00 call was re-sold, the time-value return was elevated to 2.6%, more than double the original return.

 

Discussion

Exit strategies are difference-makers. In this real-life example with PG, the time-value return was doubled and the trade was still early in the June contract where other opportunities may arise.

 

Holiday Discounts

Our holiday 15% discount is active until 12/25. Use promo code holiday15 for a 15% discount at checkout on all store items. If being ordered as gifts, please place the order by 12/16… the post office has been a bit slow of late. Enter the store here.

 

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:

Alan,

Your site has been the inspiration for me to start doing covered call writing and puts in my accounts. This year, I will have gains, as of 11/25/2020, of $340,000 because of you and your video tutorials.

Thanks,

Steve S.

 

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