The reason was that I own NIO and had been selling covered calls, and rolling them up as needed. However the stock shot up and I did not want to sell the stock. Instead I decided to roll up at a loss, and to compensate for the loss sold the put. The idea is that I am ok selling the stock at a higher price if the stock continues to go up. And if it does not go up, then I'd adjust the puts while keeping the shares I currently own.
I am new to options but not as new as you. Let me share with you what I learned from ET:
There are two approaches to covered calls:
1. Covered call, trade as a combination, meaning you open, close your calls and underlying as a single trade.
2. Covered call, but you have no intention of selling the underlying. You want to "generate" free income.
If your approach is 1, you trade traditional covered calls. If your approach is 2, you are essentially writing naked calls.
In doing 2, you are holding the underlying because you believe it is a stock you want to own. Yet you are writing calls betting it would stay the same or drop?
Your hunch was correct, it is a stock you want to keep. The stock moved up nicely and your calls are now at a loss. Because you wanted to keep the stock, you are forced to sell at a loss.
To add insult to injury, you closed it out at a loss and wrote another calls another bearish bet. Us newbie think it is a "repair" but look at it carefully, you have just increase your risks. If the underlying keeps going up, your losses will grow. So you wrote a put. At least now you placed a bet consistent with holding the underlying long term.
My humble suggestion is next time you put on a covered call, ask yourself the same question above which
@Maverick74 taught me when I first joined ET.
The most important questions for you: What is my current opinion of the underlying and how do I minimize my future risks. Asking us you are asking our opinion of the underlying because my action depends on that question.
Have a good day.
