Hello, I opened a CC for RDDT that expires on 19 Sep with a strike of $250. The stock has already blown right the strike, which tends to happen when I sell covered calls.
I would like to keep the shares and typically, I would roll the call up and out, hoping for a net credit but I was thinking of rolling the call out by at least 30 days while keeping the same ITM strike. Wouldn’t this strategy always result in a net credit due to the time value of the new call even if the stock continues to rise? What are the consequences of repeating this strategy?
Posted by Markyho
11 Comments
There is a net credit, ur PnL suffers but you receive a credit. The only consequences of this are that ur PnL will go down as the stock rises. The risk is if the stock drops below your cost basis and doesn’t rise above that where your covered calls will not recover the basis. Being a “bag holder” even if you are up overall from selling calls. It is just a PnL annihilator
I’m too dumb to give you advice, but please shoot me a DM on the next ticker you plan to sell a CC on.
>I opened a CC….I would like to keep the shares
Don’t write calls against underlyings that you really want to keep, especially if they’re volatile or you expect them to move up over time. It’s just that simple.
At some point, rolling it up may simply net you the risk-free rate. It just becomes more complicated version of a money market fund or t-bill.
If the intent is to keep the position until the shares are considered ltcg, it doesn’t always work. Depending on how deep the call is – it would cease to be a qualified covered call.
Y’know, I’m seeing all these “I sold a covered call and the stock blew past it” posts. The S&P 500 will likely set its 3rd all time high this week at close. The 24th of the year. Why is anybody selling covered calls right now? I am of the belief that if I’m hitting myself over the head with a stick and it hurts, it feels better when I stop. I don’t go anywhere near CCs in a market like this. Love them when we’re in a sideways/down market. When we’re in a big runup, I let everything be. I tend to make more that way.
If you want to keep the stock, buy to close the call on the 19th when the extrinsic is minimal. Then let it run uncovered. Let the stock do the work for you. Straight covered calls are not an all-weather strategy IMO.
Rolling deep ITM short calls doesn’t work the way you think it does. Start evaluating rolling as 2 trades.
* step 1: close existing position for loss
* step 2: open a new short call for credit
While, you’re trying to execute for net credit, does it make sense for you to do step 2 right now? It not, eat the L, move on. Hopefully, your overall gains offset your loss here.
Happened to me with RDDT when it first crossed 200. I think I had sold $180 strike. I felt like it was gonna keep going up so I simply bought to close for a loss to keep my shares.
I don’t like rolling options. I rather close and move on.
With RDDT it was a good decision anyway and the loss was OK for some tax loss harvesting 🙂
Move on or stick with the trade, or just don’t do CCs. I sold CCs at 210. Then bought it right back.
Just accept it and let them get exercised. Then sell puts to get back in.
The risk is that the stock drops back down below the strike price. The question is if the return is worth taking on that risk.
Buy another 100 shares now and let the CC expire. Problem solved