Strategy for buying back covered calls

Quote from dagnyt:

Richard,

No, he is not betting that DIA will be UNDER 84 by Dec expiration.

As all covered call writers, he is betting that it will be ABOVE the strike price.

When writing covered calls, the maximum profit is achieved when the option finishes in the money and stock is sold.

Mark
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perhaps..but most covered call writers want to keep the stock...because they like it and are betting they can keep the premium of the short call as a small hedge to the down side...my opinion only...
 
Quote from spindr0:

I'm not sure I follow. Same strike calls will offer a higher premium for a later month so the loss is covered plus some extra time premium. Am I missing something?
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no your right... I probably didn't express myself very clearly:) I don't think we can jump in without really knowing how much he received for the July call sold. Perhaps Mark is right...IF he received a nice premium then just let it get called away.
 
Thanks for responding
First off, I do agree the best alternative would have been to do nothing. I tried to post this on Friday Am and it never got posted till the weekend. I bought back the July on Friday for a $498 loss and sold the Jan 10 for $1599 (2 contracts)

Mark, Are you referring me to alternative strategies?? I am working with an IRA and am not approved for spreads, so actually I am not unhappy with a max gain of 7% and a lower break even between now and the new expiry, however if DIA drops enough may buy back the jan 10 calls at hopefully a gain and use the range to determine a new strategy, which has worked very well for me over tha past several months..I just got stuck this time. I am looking forward to reading your books.

Cupboard calls and bollinger bandaids are technical terms..just like delta force and time delay.
:D

Take care and thank you all very much for posting
 
Quote from Tom1am:

Thanks for responding
First off, I do agree the best alternative would have been to do nothing. ONLY IF BEARISH. NOT if BULLISH.

I tried to post this on Friday Am and it never got posted till the weekend. I bought back the July on Friday for a $498 loss and sold the Jan 10 for $1599 (2 contracts)

Suggestion. Don't speak of total dollars. We need to know per spread numbers. I though you sold the spread for $7, when it was obviously only half that amount.

Mark, Are you referring me to alternative strategies??

No. But when you decide to 'roll' a position, you can choose from among a variety of options to sell.

I am working with an IRA and am not approved for spreads, so actually I am not unhappy with a max gain of 7% and a lower break even between now and the new expiry,

7% is a good gain. Period. If you like your new position, then rolling was a good idea. I was merely telling you that bearish traders would have waited to roll. This is not a big deal.

however if DIA drops enough may buy back the jan calls at hopefully a gain and use the range to determine a new strategy, which has worked very well for me over tha past several months..I just got stuck this time. I am looking forward to reading your books.

If you repurchase the Jan calls 'at a gain' you may not have any gain at all. The calls are only one part of the position. If the underlying declines by more than the profit in the option, the position has a loss over the given period of time.

I don't believe you 'got stuck' this time. As Richard pointed out, most investors love to have the best of all worlds: see the options expire worthless and keep the stock. But, they want the stock right at the strike.

That's not going to happen frequently enough to matter. When I write a covered call, IMHO, the best result is for the stock to rally sharply and I earn the maximum profit that covered call writing allows. Obviously, this is not an opinion shared by everyone.

Thanks for the comment about the books. I love to sell books as much as anyone, but the truth is: The Rookie's Guide is much more complete than the others and if you read that, there is almost nothing important that you will miss. So save some money and only get the latest of the three books.


Take care and thank you all very much for posting
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We all hope the replies have been helpful.

Mark
 
Quote from Tom1am:

Mark, Are you referring me to alternative strategies?? I am working with an IRA and am not approved for spreads, so actually
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I'm not Mark :)

If you're not aware of it, when you roll a covered call out, the combination of the buy back and the sale is a calendar spread. If the strikes are different, it's a diagonal.

If you fancy doing the roll in one order, attempting to get a better fill (w/o legging out/in) and nicking something off the B/A spread, then a spread order is the best way to facilitate the roll.

I have no clue what trading levels are currently allowed in IRA accounts. If it's a case of it being available to you but you just don't have approval, contact your broker and request it. In the old days, explaining the above by phone used to get it immediately. With the internet, now you have to type it :)
 
Hi Spindr. I was reading Dagnyt's response originally and thus responded to Mark.

Your recent response clarifies the transaction for me, and it does make sense, thanks and I will check with my broker on that.

Thanks
Tom
 
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