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Understanding the Math When Rolling ITM Covered Calls Out-And-Up: A Real-Life Example with Utilities Select Sector SPDR Fund (NYSE: XLU) + Save the Date May 11th

All strategies, including covered call writing and selling cash-secured puts, have their pros and cons. The same holds true for the exit strategies associated with them. Several of our members have written to me over the years regarding a “can’t lose” portfolio overwriting strategy that will return 1% – 2% per-month by selling out-of-the-money (OTM) calls and rolling the options out-and-up when the calls are expiring in-the-money (ITM). This article will highlight a real-life example with Select Sector SPDR Utilities (NYSE: XLU) showing an option-chain that will meet the stated initial time-value return goal range and factor in Delta to determine the probability of needing to roll the option out-and-up (probability of expiring in-the-money at expiration).


XLU (an exchange-traded fund or ETF) covered call writing trade

  • 11/2/2022: Buy 100 x XLU at $67.26
  • 11/2/2022: STO 1 x 12/2/2022 $70.00 call at $0.79
  • 11/2/2022: The $70.00 call strike shows a Delta of 0.30
  • Does the premium meet our stated goal?
  • What is the probability of the strike expiring with intrinsic-value or ITM?
  • What is the potential impact of rolling-out-and-up on our 1% – 2% monthly returns?


XLU option-chain on 11/2/2022

XLU Option-Chain on 11/2/2022

The Delta of the $70.00 strike reflects an approximate probability of the strike expiring ITM 30% of the time or 3 – 4 months out of a calendar year for monthly expirations. This means rolling the strike out-and-up fairly frequently to retain the out-of-the-money trade status.


The BCI Trade Management Calculator


XLU: Initial Trade Calculations


The red arrows show a 31-day initial time-value return of 1.17%, 13.83% annualized. This meets our stated initial time-value return goal range of 1% – 2% per-month. The blue arrow shows that an additional 4.07% can be realized if share value moves up to and beyond the $70.00 strike. This means that if there is a need to roll-out-and-up, this month’s return would be 5.24% (1.17% + 4.07%). Based on the Delta stat, there is a 30% probability of this occurring.


What is the impact of rolling out-and-up?

To generate a 1-month return of 1% – 2% for XLU, the $70.00 OTM strike would do the trick. Note the Delta is 30, a 30% chance of exercise without exit strategy intervention. When this occurs, to roll-out-and-up, we do so at an option debit so that will impact overall returns.

At expiration, if the strike is ITM, the cost-to-close is the intrinsic-value of the premium + a few pennies of time-value. Let’s say XLU is trading and $72.00, the cost-to-close may be $2.05. Rolling out-and-up will generate a much lower premium. If we allow exercise and sell the shares at $70.00 and buy on Monday at $72.00 (if shares are still the same price), the debit is $2.00, $0.05 less but rolling the option protects us against further share acceleration on market open. An alternative approach if we want to generate more protection is to use a lower Delta strike (deeper out-of-the-money) and settle for lower premiums … we can’t have both.


Why this is not a “can’t lose” strategy

When share price accelerates past the out-of-the-money strike ($70.00, in this example), we will win nearly every time as we factor in upside potential as we roll out-and-up. However, if share price declines below the breakeven price point, we start to lose money or, at least, devalue the initial time-value return.



There are no “can’t miss” strategies that seek to generate higher than risk-free returns. Rolling-out-and-up to an out-of-the-money (OTM) strike will typically result in an option debit but capture increased share value. When portfolio overwriting securities which we want to retain in our long-term buy-and-hold portfolios, we must balance the returns we receive and the strikes we select. Deeper OTM strikes with lower Deltas, will provide greater protection from the need to roll-out-and-up but also generate lower returns. Each investor must determine the sweet spot that aligns with one’s personal risk-tolerance and strategy goals.


BCI Community live Zoom webinar: A streamlined version of covered call writing


New Book + 2 New Spreadsheets

Previously shared with premium members and now with the entire BCI community. For those with busy schedules who seek to generate cash flow and beat the market on a consistent basis in a user-friendly and time-efficient manner. A “don’t miss” presentation.

  • Thursday May 11th at 8 PM ET
  • Reduce the # of stocks (ETFs) considered from 8000+ to 11
  • Reduce the # of exit strategy choices from 14 to 4
  • A Zoom link will be sent to all on our mailing list and posted on this blog in a few weeks
  • Our platform allows 500 attendees
  • Login a few minutes early to ensure a seat


Premium Member Benefits Video

This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here.

For video explanation, click here.


Your generous testimonials

Over the years, the BCI community has been incredibly gracious by sending our BCI teaemail 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!

I cannot thank you enough for your work.

I already have 4 of your books and the number 5 is on its way. It’s so exciting!

Have a great day!



Upcoming events

To request a private webinar for your investment club, hosted by Alan & Barry: [email protected]


1. Wealth365 Summit

April 18th

10 AM – 11 AM ET

Covered Call Writing Dividend Stocks to Create a 3-Income Strategy 

Covered call writing is a low-risk option-selling strategy that generates weekly or monthly cash-flow. By mastering the skill of strike price selection and adding dividend distributions, a potential 3-income strategy can be crafted with a goal of beating the market on a consistent basis.

Bonus topic: An introduction to the BCI streamlined approach to covered call writing creating a more user-friendly and time-efficient path to this low-risk option-selling program.

Topics covered in this webinar include:

  • Strategy analysis
  • Option basics
  • What is covered call writing?
  • Dividend distribution
  • Stock selection
  • Option selection
  • Trade management
  • Q&A

Real-life examples will be highlighted with Dow 30 stocks using option-chains and calculation spreadsheets.

Attendees will have the opportunity to participate in written Q&A during the entire webinar.

Register here.


2.BCI total community webinar plus Q&A

Covered Call Writing: A Streamlined Approach (CEO Strategy introduction)

Thursday May 11,2023


Zoom login link to follow for 1st 500 attendees.


3. Your Mid-Year Portfolio Review Virtual Expo 

June 27th – 29th, 2023

Specific time, date, topic & description and registration link to follow.


Alan speaking at a Money Show event


About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

12 Responses to “Understanding the Math When Rolling ITM Covered Calls Out-And-Up: A Real-Life Example with Utilities Select Sector SPDR Fund (NYSE: XLU) + Save the Date May 11th”

  1. Stuart April 15, 2023 2:11 am #


    I purchased the CEO Enhanced program and will be entering my second month soon. Really love it. I was wondering if we can also use the same concepts and use puts instead of calls? Any disadvantages? Am I missing anything?

    Thanks so much.


    • Alan Ellman April 15, 2023 7:04 am #


      Yes, we can apply the same rules and guidelines to selling cash-secured puts. Now, I didn’t do 3 years of due-diligence as I did for covered call writing with this CEO approach, but I can say with confidence that it will also apply to put-selling.

      The disadvantage is that we cannot take advantage of share appreciation as we can with out-of-the-money calls and the advantage is greater protection to the downside with out-of-the-money puts.

      We can also apply the 20%/10% guidelines for puts when share appreciation causes put value to decline and then roll-up the put strike to generate additional income.

      Nice observation.


  2. Barry B April 15, 2023 9:51 pm #

    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 04/14/23.

    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:

    Reminder: Premium members are grandfathered into your current rate and will never see a rate increase as long as the membership remains active.

    Please note that the Weekly Report for 04/28/23 will be uploaded on 04/27/23.


    Barry and The Blue Collar Investor Team
    [email protected]

  3. Eileen April 16, 2023 8:32 am #


    Is there a percentage guideline you use to take a profit with a winning covered call trade? For example, would you close the trade with a 60% profit or some other %?

    Thank you.


    • Alan Ellman April 17, 2023 6:10 am #


      When we have a winning covered call trade mid-contract as share price accelerates higher, we should focus in on the time-value cost-to-close (CTC) and compare it to the amount of profit closing the trade can produce within the same remaining time frame.

      Closing the trade at a standard, 1-size fits all %, will cost us money. There are times when it pays to spend that money and others, when it doesn’t.

      The “What Now” worksheet tab of our Trade Management Calculator (TMC) will calculate the time-value CTC and we ask ourselves if we can generate at least 1% more than this amount by contract expiration. If yes, we close. If no, we simply continue to monitor the trade.

      In our BCI community, this action is called the mid-contract unwind (MCU) exit strategy. Check pages 29 -34 in my book, “Exit Strategies for Covered Call Writing and Selling Cash-Secured Puts” for a detailed explanation with a real-life example.


  4. Ron April 17, 2023 2:33 am #


    I bought two of your books last week and began reading your Encyclopedia yesterday.

    While I am a 26-year retired Marine, I did a stint of about 10 years as a series 7 broker. I avoided options because I didn’t really understand them, and I was convinced that I could better serve me clients by building them a strong portfolio. While I did enjoy success in doing that, I/we have always stalled in a side-ways/consolidating market.

    I wish that I had read your books while I was still an active broker! I could have earned my clients extra premium in a flat market. Now, I am only investing for myself, and plan to jump into covered calls as soon as I have educated myself thoroughly – most of which will come from your books and seminars.

    One question, though. For the life of me I can’t figure out why you wouldn’t want the market to be relatively flat, or even slightly down when writing covered calls. Seems to me (as uneducated as I might be) that I would not be in danger of being “called” when the market is not going up. what have I missed here?

    P.S, your books are a good read and have been fascinating to me!! Thanks for writing them!

    All the best,


    • Alan Ellman April 17, 2023 6:28 am #


      First, thank you for your service to our country. I was an officer in the US Army Dental Corps myself … a positive experience despite their concerns over the length of my hair.

      Now, to your question. Let’s assume for purposes of my response that we are not concerned about potential tax consequences from having shares sold on long-term, low cost-basis securities in non-sheltered accounts.

      First, what is our goal? It’s to generate cash flow and returns that are higher than risk-free investments (money markets, Treasuries, CDs etc.). We leverage stocks or exchange-traded funds (ETFs) to accomplish this. Our focus is on the cash, not the stock. Whichever stock or ETF will result in the best returns is where we reside in our BCI community. We have no loyalty to the security, only to the cash invested in it.

      We also avoid quarterly earnings reports (you’ll get to that in the “Encyclopedia”). Most of the time, we only keep stocks for 2 months and avoid the month or week of the report (read that section more than once).

      Back to your concern over exercise in an uptrending market. This is a best-case scenario. If we sold an out-of-the-money call, we should maximize our returns … option premium + share appreciation up to the strike price. This means champagne, not Kleenex.

      If the strike is expiring in-the-money, we can avoid exercise by rolling the option if the calculations meet our pre-stated initial time-value return goal range. If not, we say “see you later” to the stock and look to other financial “soldiers” to leverage to continue the cash flow.

      Sideways markets and even slightly down markets are okay for us but normal (up 8% – 10% per year) and bull markets are the absolute best for covered call writers and put-sellers as well.

      Please keep in touch.


  5. Alan Ellman April 18, 2023 4:01 pm #

    Premium members,

    The Blue Chip Report for the best-performing Dow 30 stocks for the May 2023 contracts has been uploaded to your member site.

    Login and scroll down on the right side (“resources/downloads” to “B”).

    Alan & the BCI team

  6. Alan Ellman April 19, 2023 4:48 pm #

    Premium members:

    This week’s 4-page report of top-performing ETFs has been uploaded to your premium site. The Select Sector SPDR section is now crafted to align with our streamlined (CEO) approach to covered call writing. The report also lists Top-performing ETFs with Weekly options, mid-week market tone as well as the implied volatility of all eligible candidates.

    Premium member video link:

    For your convenience, here is the link to login to the premium site:

    NOT A PREMIUM MEMBER? Check out this link:

    Alan and the BCI team

  7. Venkat April 20, 2023 1:44 am #

    Hello Alan and Barry,

    I have a CC in DELL and LOW and both are deep in the money and Expiration April 21 2023.

    Both are paying dividends on April 24th. Shall I buy back option and roll up to higher strike

    or allow to get exercised. There is a possibility stocks price can come down after dividend payout.

    Also both are in over bought condition in charts.

    If exercised what will be the tax implication as in the case of Lowes stock was purchased on

    May 7th 2022. Just short of one year. Mine is normal account.

    In the case of DELL stock purchased more than year back.

    In case allowed for exercising can I immediately by back stocks and in that scenario what will

    happen to wash sale benefit. Will I loose that benefit during assessment.

    My understanding of wash sale situation we should avoid selling call for 30 days from date of wash sale.

    Hope I have put my situation properly in above writing.

    Requesting you to please guide me and help.

    Thanks and Regards,


    • Alan Ellman April 20, 2023 5:33 am #


      I cannot give specific financial advice in this venue, but I can offer few general comments you should find useful.

      The most likely time for early exercise of our options is the day prior to the ex-dividend date (tomorrow for Dell, Monday (after expiration for LOW). There are rare exceptions and early exercise is still extremely rare.

      If our goal is to prevent exercise in order to avoid capital gains tax consequences and capture dividends, we consider buying back the short calls. As expiration approaches, the time-value component of the cost-to-close will be pennies and typically lower than the future dividend distribution. The intrinsic-value of buying back the short calls is mitigated by the increase in share value above the current call strike.

      We should also factor in that the price of the stock will drop by the dividend amount on the ex-date.

      Bottom line: To avoid early exercise, action is needed 2 days prior to the ex-date if contract expiration is after the ex-date. To avoid exercise for in-the-money calls in general, action is needed prior to 4 PM ET on expiration Friday.

      Since I am not a tax expert, I defer to your tax advisor on those matters.


      • Venkat April 20, 2023 11:26 am #

        Hello Alan,

        Thanks for your opinion ang guidance.


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