I am new to writing covered calls and would like someone to offer some education to me. I purchased 100 TIE on 11/29/05 for 60.75 and sold 1 dec 60 for 3.50 expecting about 4% return for 19 days. Stock closed today @68.99.Dec 60 call at ask 9.50. Would it be advisable to roll up to a Dec 65 (bid 5.10),roll up to Jan 65(bid 8.00)or just sit tight and more than likely have the stock called for my 4% gain? What is the best strategy for roll-ups? Thanks in advance.
You could buy a 70 call to limit risk and then sell your underlying stock. If you get a pullback you could then either buy the stock again or buy back your short call at a better price. Does the stock pay a dividend?
Dec 70 calls ask 2.70. Minimal dividend (.04) Trade is in IRA account if that matters. Initial strategy is to sell in the money calls to generate cash flow. Will probably roll up to Jan 65 If called, return is approx 10%+ for 49 days. Would that seem reasonable?
You have to have the expectation when entering a covered call position that the stock could run much higher but you accepted the 4% return when opening the position. Now the stock has soared you are not so happy with the limited reward nature of the position and are looking to adjust. When you adjust, that is when you get into trouble. What happens when you buy back the $60 Call and sell the $65 Call? It will cost you a debit of $4.40 and put your purchase price now at $60.75 + $4.40 or $65.15 with a short strike at $65. Assuming my math is correct this makes no sense at all. Rolling CC positions can many times turn a winner into a loser. Newbies sometimes make the mistake of buying back the call because now the stock has made a strong run only to watch it slide back lower and realize that they now have a nice loss. Best bet to avoid turning the winner into a loser is to take the 4% on assignment which is nice for the time period and look for another entry if you so desire. I am sure others would recommend the adjustment but I have seen to many people try and take the CC off because the stock has gone up much higher than they expected and spend money to buy back the call and allow a winner to become a loser. If oyu hold the call and the stock slides all the way back to $60, you keep the premium and can sell more in the next month if it still has support.
Well stated.I see your point.That is why I asked for advice.I know in time that I will be a better trader from gathering knowledge from those more experienced than myself. Thanks very much.