In our last blog article, we discussed how to enter our rolling-out trades into our covered call writing trading logs. This article will highlight the additional considerations when rolling our covered call trades out-and-up.
Trade log challenges when rolling-out-and-up
- We are combining 2 months of option premiums: how do we break this down?
- What cost-basis do we use for the next contract month?
- When we roll-out, we are almost always rolling-out to an in-the-money (ITM) strike but when we roll-out-and-up, we can be rolling to an in-the-money, at-the-money or out-of-the-money strike. How does this impact our trade entries?
Hypothetical trade
- 12/27/2021: Buy 100 x BCI at $48.00
- 12/27/2021: STO 1 x 1/21/2022 $50.00 call at $1.50
- 1/21/2022: BCI trading at $52.00
- 1/21/2022: BTC the 1/21/2022 $50.00 call at $2.05
- 1/21/2022: STO the 2/18/2022 $51.00 ITM call at $2.50
- 1/21/2022: STO the 2/18/2022 $52.00 (ATM) call at $4.00
- 1/21/2022: STO the 2/18/2022 $55.00 (OTM) call at $1.00
BCI guidelines for rolling trade entries: current contract month
The current month concludes with the final stock price at the in-the-money strike (we generally roll strikes that are ITM), our contract obligation. This means we have maximized our trade as initially structured as shown in this screenshot:

Rolling Out and Up: 1st Month Entries and Calculations
In these hypothetical trades, a 1-month 7.29% (brown cells) return were realized.
BCI guidelines for rolling trade entries out-and-up: next contract month
At the time we roll the option, shares can be worth no more than our contract obligation to sell at $50.00, so we enter $50.00 as the price per-share. Since we are rolling-out-and-up, the strike can be ITM, ATM or OTM and we enter the new contract expiration date, 2/18/2022, in this case. We then use the net BTC and STO net option credit or debit our option $/Share entry.
Important note: The net premium will be a negative number when the cost-to-close the current month strike is greater than the next month premium. This deficit is largely negated by the unrealized share appreciation created when the lower strike is removed.
Rolling-out-and-up to an ITM, ATM and OTM strikes: Next month trade log entries
The net option premiums based on the next-month and current month premiums are as follows:
- $51.00 ITM strike: $2.50 – $2.05 = +$0.45
- $52.00 ATM strike: $4.00 – $2.05 = =$1.95
- $55.00 OTM strike: $1.00 – $2.05 = (-) $1.05
The trade entries and calculations are shown in the screenshot of the of the BCI Trade Management Calculator:

Rolling Out and UP: 2nd Month Entries and Calculations
- The $51.00 ITM strike has a potential 1-month return of 2.9% (0.9% + 2.0%)
- The $52.00 ATM strike has an initial time-value return of 3.9%. The 4.0% upside potential will be realized if share value remains at or above the current price of $52.00
- The $55.00 OTM strike has a potential 1-month return of 7.9% (-2.1% + 10.00%). Notice the negative time-value return which is mitigated by the unrealized share appreciation when the current month strike was elevated
- As with rolling-out, there is the (minor) flaw in this approach for ITM strikes (red circled area). In the brown cell, we see downside protection of 0%, when, in fact, it is 1.9% ($1.00/$52.00) because the shares are, in fact, trading at $52.00 at the time of the roll
Discussion
When rolling-out our covered call trades out-and-up, we must break up our trade entries over the 2 contract cycles. This includes having rules and guidelines for:
- Stock price entry
- Final stock price
- Dividing option credits and debits over 2 contract cycles
- Rolling out-and-up to ITM, ATM and OTM strikes
These trade entry rules and guidelines are not perfect, but they are practical and represent the best way to reflect our current trade status.
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Upcoming events
1.Mad Hedge Investor Summit
Thursday September 15th, 2022
12 PM ET – 1 PM ET
Analyzing a 1-Month Covered Call Writing Portfolio from Start-To-Finish
A real-life example with a $100k ETF Select Sector SPDR portfolio
Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash flow. This presentation will demonstrate how to implement this strategy using a database of only 11 exchange-traded funds for a 1-month option contract cycle. These are real-life trades taken directly from one of Dr. Ellman’s portfolios with screenshots verifying each trade. A final monthly contract result compared to the performance of the S&P 500 will be calculated.
Topics included in this webinar:
- What are the Select Sector SPDRs?
- How to establish a covered call writing portfolio
- What is the role of diversification?
- What is the role of cash allocation?
- Calculating initial returns
- Analyzing each trade in the monthly contract
- Final results
- Next steps
2.Wealth365 Investor Summit
October 10th – 15th 2022
Using Both Covered Call Writing and Put-Selling to Generate Monthly Cash Flow
The PCP Strategy (Put-Call-Put or “wheel” strategy)
Hosted by:
Dr. Alan Ellman, President of The Blue Collar Investor Corp.
Barry Bergman, BCI managing Director
Selling stock options is a proven way to lower our cost-basis and beat the market on a consistent basis. Two such low-risk strategies are covered call writing and selling cash-secured puts. This presentation will detail how to incorporate both strategies into one multi-tiered option-selling strategy where we either generate cash-flow or buy a stock at a discount. I refer to this as the Put-Call-Put (PCP) Strategy, also referred to as the wheel strategy.
The basics and pros and cons are discussed as well as a real-life example and introduction into the BCI PCP Calculator. This seminar is appropriate for those who look to generate modest, but consistent, returns which will enable us to beat the market on a steady basis while focusing in on capital preservation.
3.Money Show Orlando live event
October 30th – November 1st, 2022
OMNI ORLANDO RESORT AT CHAMPIONSGATE
Visit Alan, Barry and members of the BCI team at Booth # 415
Sunday, October 30, 2022, at 5:00 pm – 5:45 pm EDT
Covered Call Writing: Multiple Applications Based on Current Market Conditions
Monday, October 31, 2022, at 4:30 pm – 6:30 pm EDT
Selling Cash-Secured Puts: Detailed Start-to-Finish Six-Part Program*
Masters Class
Comprehensive Course on Selling Cash-Secured Puts
Detailed start-to-finish 6-part program
This presentation will provide all the information, with real-life examples, necessary to master the strategy of selling cash-secured puts. The program is divided into 6 sections:
- Section I:
- Option basics
- Section II
- Traditional put-selling
- Section III
- PCP (wheel) strategy
- Section IV
- Buy a stock at a discount instead of a limit order
- Section V
- Ultra-low-risk put/Delta strategy
- Section VI
- Ultra-low-risk put/Implied volatility strategy
This presentation was developed to benefit both beginner and experienced option traders and will provide all the information needed to initiate the strategy and elevate returns to the highest possible levels.
45-minute presentation
Covered Call Writing: Multiple Applications Based on Current Market Conditions
Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ)
Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are:
- Normal to bull markets
- Bear and volatile markets
- Low interest-rate environments
A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances.
4. Money Show’s Post-Election Strategies Virtual Expo
November 10th -11th, 2022
Information & registration link to follow

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Market tone data is now located on page 1 of our premium member stock reports and page 1 of our mid-week ETF reports.
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Premium Members,
This week’s Weekly Stock Screen And Watch List has been uploaded to The Blue Collar Investor Premium Member site and is available for download in the “Reports” section. Look for the report dated 09/09/22.
Also, be sure to check out the latest BCI Training Videos and “Ask Alan” segments. You can view them on The Blue Collar YouTube Channel. For your convenience, the link to the BCI YouTube Channel is:
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[email protected]
Alan,
In your books, you favor rolling down in the last 2 weeks of a monthly contract which is where we are now. My question is how do you decide which strike to roll down to?
Thanks,
Howard
Howard,
As a guideline, I typically roll-down to an out-of-the-money strike and try to generate a net option credit. Let me set up a hypothetical example:
Buy 100 x BCI at $48.00
STO 1 x $50.00 (monthly) call at $1.50
In the last 2 weeks of the contract, BCI drops to $43.00
BTC 1 x $50.00 call at $0.15 (10% guideline)
STO 1 $45.00 call at $0.85 (roll-down to an OTM strike)
This represents a net rolling credit of $70.00 per-contract ($85.00 – $15.00)
The rationale behind these guidelines is that we are creating additional premium credits while still allowing for some share price recovery.
This approach will benefit our portfolios much more often than not.
Alan
Dear Alan,
1)Is there a significant difference from the results of using the BCI Elite Calculator to predict trade results or is it that it gives the amount of a standard deviation and price range probability which the Delta alone does not give.
Can’t this be determined if the Delta is 16 (84% probability) with an ATM strike without using the Elite Calculator?
2) Early this morning Professor Segal was on CNBC discussing buying stocks now when the VIX is high(20 or over) should result in very good yields for investors as in these current conditions he felt inflation was coming down and he had turned bullish.
Which of your articles or videos have addressed similar issues as they apply to covered call options? I have all your publications and materials.
Thank you.
Donna
Premium Member
Donna,
The Elite-Plus and Trade Management Calculators will give specific trade results based on the data entered. This includes time-value returns, upside potential for OTM call strikes and downside protection, as well as breakeven price points.
The BCI Expected Price Movement Calculator (“resources/downloads” section of the premium member site), will produce an expected trading range based on the implied volatility of the underlying security with an 84% projected accuracy.
Delta stats will offer an approximation of probability of an option expiring ITM.
I agree with Professor Segal that inflation data has been positive and that bodes well for the economy and the market. No one knows for sure the short-term movement of the market, but the signs do lean positive.
The VIX and the S&P 500 historically are inversely related. I prefer a lower VIX which has been declining of late.
Here are links to 3 articles and 1 podcast related to VIX and 2 videos (scroll down for the 2nd after clicking on the last link) on the capabilities of our TMC Calculator (our most recent and best calculator)
https://www.thebluecollarinvestor.com/vix-covered-call-writing-selling-options-against-market-volatility/
https://www.thebluecollarinvestor.com/using-the-cboe-volatility-index-vix-for-our-strike-price-selection/
https://www.thebluecollarinvestor.com/the-cboes-volatility-index-vix/
https://www.thebluecollarinvestor.com/bci-podcast-80-using-the-vix-to-achieve-higher-option-selling-returns/
https://thebluecollarinvestor.com/minimembership/bci-trade-management-system/
Alan
Premium members,
The latest Blue Chip Report for the top-performing Dow 30 stocks has been uploaded to your member site. This report is for the October 2022 contracts and is located in the “resources/downloads” section (right side).
Alan & The BCI team
Premium members:
This week’s 4-page report of top-performing ETFs and analysis of the top-performing Select Sector SPDRs has been uploaded to your premium site. One and three-month analysis are included in the report. Weekly performance has also been incorporated into the report although not part of the screening process. Weekly option availability and implied volatility stats are also incorporated.
The mid-week market tone is located on page 1 of the report.
New members check out our ongoing and never-ending training videos (“Ask Alan” and Blue Hour webinars). We add at least one new video each month. Only premium members have access to the entire library of these training tools.
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