trade repair on covered call

F

fusiforme

I am interested in hearing about trade repair strategies for the following covered call scenario:

I buy a covered call on a stock which makes an unexpected jump afterwards and keeps going up without coming down.

I know I could simply buy back the covered call and hope the stock continues up, but this seems risky after the stock has already made a big up move, since it seems there is more risk to the downside after such a move.

I could also just buy back the covered call and then close my stock position, taking a very small profit, since my debt from the covered call is so big that it has eaten up most of the profits on the stock's move.

what are some other strategies in this situation which might be preferable and open up the possibility of greater profit?
 
fusiforme said:
I am interested in hearing about trade repair strategies for the following covered call scenario:

I buy a covered call on a stock which makes an unexpected jump afterwards and keeps going up without coming down.

I know I could simply buy back the covered call and hope the stock continues up, but this seems risky after the stock has already made a big up move, since it seems there is more risk to the downside after such a move.

I could also just buy back the covered call and then close my stock position, taking a very small profit, since my debt from the covered call is so big that it has eaten up most of the profits on the stock's move.



what are some other strategies in this situation which might be preferable and open up the possibility of greater profit?
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I can tell you what I do, depending on how far otm the call is. Usually I will just roll the call up and out as long as there is a credit. The other thing I will do is sell a put farther out and allow the position (covered call) to expire. There isn't a repair strat for a winning trade which you have.
 
Other possible adjustment strategies include adjusting the ratio's of the short call and / or rolling out to further months.

For instance, as the stock approaches the short strike, you could roll the short call using a butterfly spread (buy back the short call, sell 2x further OTM call, and buy a further OTM call). Rolling using a call butterfly may be cheaper than covering the short call directly, while still allowing some profit if the stock continues to appreciate.

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