Exit strategies for covered call writing is a critical element necessary to maximize our returns. In December 2020, Alan K shared with me a rolling-down trade he executed with WSM and was curious as to the total trade status. This article will highlight the series of trades from 11/23/2020 to 12/9/2020 for the December 2020 contracts expiring on 12/18/2020.

 

Alan’s trades

  • 11/18/2020: Buy 100 x WSM at $110.55
  • 11/18/2020: Sell-to-open (STO) the December 18, 2020 $115.00 call at $2.45
  • 12/9/2020: Price of WSM is $104.87
  • 12/9/2020: Buy-to-close (BTC) the December 18, 2020 $115.00 call at $0.45
  • 12/9/2020: STO the December 18, 2020 $105.00 call at $2.60 (rolling-down)

What is the status of the trade at this point in time?

 

Using the multiple tab of the Ellman, Elite and Elite-Plus Calculators to determine current trade position

WSM Rolling-Down Calculations

  • Top row: This is the initial trade structuring
  • Second row: Status of trade after closing the initial $115.00 short call at $0.45 (net option credit moves down to $2.00)
  • Third row: Status after rolling-down to the $105.00 strike (net option credit moves up to $4.60)
  • Option status after rolling-down: +4.16% ($4.60/$110.55)
  • Stock loss locked-in at $5.55 (best case scenario): $110.55 – $105.00 = -5.02%
  • Net loss on trade (row 3) if stock price closes at or above $105.00: -0.9%

 

Discussion

Rolling-down is an excellent exit strategy for covered call writing when share price declines, especially in the latter half of a contract. In the case of WSM, by writing covered calls and implementing the rolling-down exit strategy, a potential 5.02% stock loss was reduced to a 0.9% loss. Calculations can be accomplished using the multiple tab of the BCI calculators.

 

Best BCI Calculator for Covered Call Writing and Put-Selling click 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:

Hi Alan!

First, allow me to commend you on your website and your videos and books. You are a class act and I like the way you acknowledge your team in all you do.

I have done more training than you can shake a stick at in my career and I am very impressed.

Best regards,

Scott

 

Upcoming events

1. How to Trade It Podcast

May: A link to the interview will posted on this site and in social media when provided to BCI

Interview with Casey Stubbs

The focus will be on “my story” and analysis of my go-to strategies

 

2. Mad Hedge Traders and Investors Summit

June 8th – June 10th

The Many Uses of Stock Options: Portfolio Overwriting & the Stock Repair Strategy

Details to follow.

 

3. Money Show Virtual Expo

July 13th – July 15th

2-hour Money Masters Course (paid event to The Money Show)

4 Practical Applications to Selling Cash-Secured Puts

Details to come

 

Alan speaking at a Money Show event

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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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