Covered call writing exit strategies are critical to our overall success. There are times, however, when the best action is no action at all. On July 25th 2019, Rob shared with me a successful trade he executed and was considering closing 1 week prior to the 8/2/2019 expiration. For an answer, we need to turn to the “Unwind Now” tab of the Elite version of the Ellman Calculator.
Rob’s trade as of 7/25/2019
- 6/17/2019: Buy BABA at $173.54
- 6/17/2019: Sell the August 2nd $175.00 call for $2.35
- 7/25/2019: BABA trading at $178.00
- 7/25/2019: Price of $170.00 call is $4.78
Initial trade setup
BABA: Initial Calculations
Calculation entries to unwind the entire position
Unwind Now: Trade Information Entries
Calculation results to unwind the entire position
BABA: Unwind Now Calculation Results
Discussion
The initial trade structuring shows a potential 5-week return of 2.2% (yellow cells). If the trade is closed on 7/25, the time-value cost-to-close is 1.02%, almost cutting in half the maximum results Rob is currently enjoying. The question we ask is can we generate more than 1% more than the time-value cost-to-close by contract expiration. In this case, can we generate more than 2.02% in 1 week? The answer is probably not, so unwinding does not appear to be in our best interest. Another (better) approach would be to take no action but continue to monitor the trade.
Your generous testimonials
Over the years, the BCI community has been incredibly gracious by sending our BCI team email testimonials sharing stories as to what our educational content has meant to their families. Moving forward, we have decided to share some of these testimonials in our blog articles. We will never use a last name unless given permission:
Hi Alan,
Your book reviews on Amazon are terrific and I see you have quite a following which I’m really impressed with. Thanks for responding to my questions.
Best,
Lisa S
Upcoming events
1. February 6th – 9th 2020 Orlando Money Show
3- Hour Masters Class Saturday February 8th 1:45 – 4:45 PM
BOOTH 306
2. Tuesday March 10, 2020 Long Island Stock Traders Meetup Group
7 PM – 9 PM
Plainview- Old Bethpage Public Library
Covered Call Writing Blue-Chip Stocks to Create a Free Portfolio of Large Tech Companies
***********************************************************************************************************************
Market tone data is now located on page 1 of our premium member stock reports and page 8 of our mid-week ETF reports.
*********************************************************************************************************************