Comments on: Rolling-Down to an ITM Strike in the Last Week of a Monthly Contract https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/ Learn how to invest by selling stock options. Fri, 12 Nov 2021 12:32:19 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-496327 Fri, 12 Nov 2021 12:32:19 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-496327 In reply to Mehran.

Mehran,

You’re in a winning position with this trade at this time.

When you entered the trade, there was $2.25 intrinsic-value in the premium you received so I’m assuming a premium over $3.00. The cost-to-close the $7.50 strike today, with the stock price at $8.07, is about $1.00. The trade can be closed today (if you choose to) at a substantial profit.

If no cation is taken and the strike remains out-of-the-money at expiration, the entire original premium will become realized profit.

Alan

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By: Mehran https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-496326 Fri, 12 Nov 2021 08:06:41 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-496326 Hi Alan,

Thanks for your great teaching method. Your simple language makes it easier to understand options for this beginner.

I made an order entry error by writing a 11/19 contract of naked put with $7.50 strike when BITF was at $5.25. Please help me with some protection.

Thanks,
Mehran

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By: Gidey https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-496180 Thu, 11 Nov 2021 20:13:24 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-496180 In reply to Alan Ellman.

Thank you for your prompt response Sir! I appreciate it.

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-495947 Thu, 11 Nov 2021 11:50:06 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-495947 In reply to Gidey.

Gidey,

You did quite well… more on that soon.

The initial time-value return (ROO) was $7.25 or 3.27% (1-month return if left through expiration). There was also 1.59% upside potential if share price moved up to the $225.00 strike and it went well past that ($311.91 on 11/5). At that point in time, the maximum 1-month return of 4.86% was looking good.

Now, on 11/5, the cost-to-close was $87.35 per-share which breaks down to $86.91 of intrinsic-value (we get this back if we sell the shares) and $0.44 per-share of time-value.

The “Unwind Now” tab of the Elite-Plus Calculator shows us the actual time-value cost-to-close which is $0.44 per-share or 0.2%. See the spreadsheet screenshot below.

Okay, this explains the spreadsheet calculations now let’s get back to how you did. The initial maximum return was 3.27% + 1.59% = 4.86%. If we close on 11/5, the time-value cost-to-close is 0.2% leaving us a 16-day return of 4.66%. This annualizes to 106.3%. That’s how you did.

Keep up the good work.

CLICK ON IMAGE TO ENLARGE & USE THE BACK ARROW TO RETURN TO BLOG.

Alan

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By: Gidey https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-495939 Thu, 11 Nov 2021 06:59:55 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-495939 Hi Alan,

I am relatively a new subscriber and in the process of learning Options and enjoying it. I have a couple of questions for you regarding trade calculations I did with the Elite-Plus calculator on November 5th with NVDA.:

On October 20th I bought NVDA for $221.47 and sold the November 19th 225 call for 7.25. On November 5th NVDA was at 311.91 and the cost to buy back the option was 87.35. I used the unwind now tab of the EP Calculator and it showed a negative time value return of -0.2%.

Based on my understanding: The Net gain to unwind was $1034 / contract = $2072 for 2 contracts. My ROO with upside potential = $1450 + $706 = $2156 total. Hence, the total time value = $88. Based on the above, I decided to let go of my position and I was able to buy and STO another position within the month for more than $88.

QNS:

1. How did I do?
2. Why is the time value shown as negative 44 per contract and negative -0.2% instead of positive 44 and (0.2%). Could you please explain?

Thank you,

Gidey

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By: Alan Ellman https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-495409 Wed, 10 Nov 2021 12:33:16 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-495409 In reply to Joanna.

Joanna,

These are guidelines.

First, a general response: When the factors that motivated us to use that security (fundamental, technical and common-sense screens) no longer exist.

Now, more specific guidelines:

1. The stock is significantly under-performing the S&P 500 since the trade was initiated.

2. Impactful negative news came out after the trade was entered.

3. A 7% or more price decline after the trade was initiated. This is the guideline we use in our BCI Calculators.

4. For put trades, we close the short put if share price declines >3% below the out-of-the-money put strike.

These are all guidelines.

Alan

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By: Joanna https://www.thebluecollarinvestor.com/rolling-down-to-an-itm-strike-in-the-last-week-of-a-monthly-contract/#comment-495368 Wed, 10 Nov 2021 06:59:45 +0000 https://www.thebluecollarinvestor.com/?p=20360#comment-495368 Alan,

Can you please provide clarity on when to call it quits on the underlying? For example, when the call is automatically bought back at 10/20, exactly what criteria is used to determine if the underlying is something to retain?

Thank you.

Joanna

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