Original position: Long 2000 CVX stock @ $81 Short 20 CVX July 85 Call @ $0.9 Now the CC is DITM @ $86.5 or so. I added a vertical bull spread to the original position: Long 10 CVX July 80 Call Short 10 CVX July 85 Call Net Debit: $4.3 Is this a good strategy to "repair" the CC position or there are better ways to do if so I don't miss all the upside from $85 and beyond? Thanks!
Are you sure you know what a covered call is? 'Cause when the short call goes in the money there is nothing to repair because there is nothing broken. It is doing what it is supposed to do. You will get assigned and make a profit at expiration. Your "repair" is adding a vertical which is a new bullish position. You should not trade strategies you are not familiar with. Now if you are upset that you sold a call and the stock has rallied too far, that is the risk you take on with a limited reward strategy like a covered call. Buying back the call to allow yourself unlimited reward adds more risk to the position since the stock can whipsaw on you quickly. Best bet is to let position expire and get assigned and if you are still bullish you can enter another long position.
Just to add to what coach is saying just look at this position...this close to expiration you want to put this on for a potential profit of 70 cents? risk 4.30 to make .70? with slippage and commission probably less. Remember each position has to stand on its own. There is no repair for a CC...hey you did good...you made money on the trade ...move on to a new one. If you are called out then sell the 85 put for the next month or two.
I just got upset that the stock is running away from me and will be called away. That's why I use "repair" instead of repair. I'm wondering how you would establish a new position to capture the move from 85 and up if your sentiment on CVX is still bullish while still having the CC on board.
why get upset? you had a prognosis of the stock. you made a trading plan. you executed the trade. the trade went your way... and then some. ok, you pocketed your profit, according to your plan. Now you are upset that you didn't make more? What if the stock tanked on you? Do you get upset too ?
I would guess that he's 'upset' because the stock was more bullish than he expected and would now like to continue to participate in the stock's upmove. One choice is to roll your short call up and out, preferably for even or a credit. This still leaves you with a synthetic naked short put. Is that what you really want? Or you could do something a little more elegant and turn your covered call into a married put (by buying back the call and buying an otm put,i.e. buying the strangle) or collar (by buying back the call, selling a higher strike call and buying a put, i.e. buying the call vertical + buying a put). And that's another topic altogether. All you've done so far is buy an extra bull vertical. This in itself is another, also bullish, trade and does nothing to protect your current profits. To reiterate, the answer to your question depends on your prognosis for the stock and what sort of risk you like to take. If you want to know the answer to your question you will need to ask yourself the following: Would I still want to open this trade now knowing what the current risk/reward profile is? So, all I've got for you are the same old answers . db
How about rolling up the call to July 90 and take a loss on the July 85? My sentiment is still bullish. Is this a valid strategy based on this calculation. I have the CC position on margin and right now it's not making me any money while I have to pay interest. Thanks! Sell to open July 85 @ 0.9 (original CC) Buy to close July 85 @ 5.9 Sell to open July 90 @ 1.55 ------------------------------------ Net debit / loss = 3.45 5 pts higher on long stock (let them call away the stock at expiration) 5 - 3.45 = 1.55 extra profit on the position
Let's think for a minute about your proposal. You want to buy the july 85/90 call spread (this will be a debit). Ask yourself IF I had NO position on at all would I want to do this trade at the current price? My guess would be NO. If your answer is YES then go ahead and roll, otherwise just close out the position and move on. Just remember should the underlying drop significantly then you'll be looking at a pretty loss (the debit you paid for the vertical plus loss in value of the underlying). Again, I don't like naked short positions, far too much risk for the measly reward you collect. db