Seeking Immediate Advice on Covered Call
- Thread starter arncap
- Start date
Rolling up at a large debit murders your original b/e. If you didn't own the stock would you buy it at the level? Think about your price expectation for the next month and drive the decision off your expectation. If you have no expectations going forward - most would take the position being called away.
There a lot of data that you did not give. One is how much is the premiums you got from selling the covered calls? How much would it cost you to roll it to a higher strike price? To close this position would mean, you have to buy back the option at a loss and sell the higher strike price, hoping you breakeven or come out a little at the end. You have to do the math to see if it makes sense. Then, take the decision where you get the most monies. And your cost basis for your shares is lower because you have to deduct the premium you received from selling the covered calls. Covered calls are a limited profit strategy. You probably, made a profit but, you got to do the math.
I didn't expect the stock to suddenly go up over 23% the day before expiration! Typically if I am selling covered calls on a stock, I am prepared to lose that stock to assignment. This one situation has made me think but in the end I will probably let them go. Otherwise, I may try to roll some or all of them if I can do so at the right price.
If you are in SHOP for the long haul then be prepared to keep rolling the weekly Calls until you get a pull-back. Take whatever small premium you can week-after-week and be patient. If you are looking for short-term gains on SHOP then ask yourself, would you buy the stock now at the strike price of the options that are expiring in-the-money? If so then roll, otherwise liquidate.
I know this is hindsight, but if I like (love) a company (and still want option money), I will do a covered call way out of the money.
Example...I own 100 shares of Apple. I did a covered call (a few months back) for the July $190.s. Good option premium on a quality stock. I am hoping it doesn't get called away. I am willing to take less option premium, for less of a chance of it getting called away...
Yet with other companies, I buy (at what I consider a good price) and then option just above what I bought it for. I may even do a leap on the stock. I enjoy a high option premium (and entry...Think Google) and don't care if I loose it to the other side. Depends on the company...
Example...I own 100 shares of Apple. I did a covered call (a few months back) for the July $190.s. Good option premium on a quality stock. I am hoping it doesn't get called away. I am willing to take less option premium, for less of a chance of it getting called away...
Yet with other companies, I buy (at what I consider a good price) and then option just above what I bought it for. I may even do a leap on the stock. I enjoy a high option premium (and entry...Think Google) and don't care if I loose it to the other side. Depends on the company...
