How to roll deep ITM Covered Calls
Covered calls are a great way to earn income on the stocks that you own, but what happens if the stock suddenly shoots to the moon? 😱 Will you miss out on all the gains? 😭 Don't fret, this is a complete guide on how to roll your call options to buy more time and also more upside.
Firstly, what is a covered call? It is a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security. To execute this, an investor who holds a long position in an asset then writes (sells) call options on that same asset to generate an income stream. The investor's long position in the asset is the cover because it means the seller can deliver the shares if the buyer of the call option chooses to exercise. Important to note that the investor is obligated to sell the shares if the price of the stock is higher than the strike price of the call. So never sell a call naked (if you don't own 100 shares) or you might really lose your pants 😂
Covered calls are a neutral strategy, meaning the investor only expects a minor increase or decrease in the underlying stock price for the life of the written call option. This strategy is often employed when an investor has a short-term neutral view of the asset and for this reason, holds the asset long and simultaneously has a short position via the option to generate income from the option premium. But what if the stock price suddenly rises above the strike price?
Do note that the option can be exercised even before the expiration date so it is important to keep an eye on the extrinsic value of the option, if it goes to zero or below the chance of it being exercised early is high. So what do you do when the option value is close to zero? You buy it back.
I sold a call on my $Tesla Motors(TSLA)$ stock and lost $4500! 😭 I had buy it back and immediately sell another call further out in time and at a higher strike.
I sold the 220 strike 40 days away from expiration and collected $4600. Which means I get to sell the stock at a higher price and I still get to pocket $4600-$4500=$100 Isn't that a good deal?😄
After 40 days $Tesla Motors(TSLA)$ still has not corrected.
I bought back the call and sold the 2032/10/20 230 call for a credit of $100+
So by rolling out my calls I am still collecting money and increasing the price which I am obligated to sell my shares for. While I wait for a correction.
Hope this helps and you are able to learn from my experience. Thank you for reading. Please like and share if you find this useful.
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OTM covered calls offer limited downside protection. The premium received can offset a small decrease in the stock's price, but for larger decreases, there is less protection. In contrast, deep ITM covered calls provide substantial downside protection due to their high delta.
Deep In-The-Money (ITM) covered calls are generally considered more bearish than Out-of-The-Money (OTM) covered calls.
If the stock price has not appreciated significantly since you sold the original call option, you may not be able to buy it back for a profit.
Buy more Tesla shares and hold for the next 5 years and you will definitely retire 20 years before these bashers.
Buy more Tesla shares and hold for the next 4 years and you will definitely retire 15 before these bashers.
Keep buy TSLA. It is a favorite stock for big long term investors. It will be high up one day. The value of this stock may reach five time current price in future.
Price today is meaningless and you dont know what your doing anyways. Buy when you have funds, it will go up another 3000-5000 points before you die. Its much easier to be right than perfect.
Tesla bulls we are more powerful than the bears let’s show them who’s boss and take this baby back to ATH’s ROARR🇺🇸
You may still be able to roll the call option for a credit, which will increase your overall profit on the trade.
The decision of whether or not to roll a deep ITM covered call is a personal one.
Tesla not just an EV company their mega packs will be going hugh.
Tesla up in frankfurt, ready for 300+ 🚀
Options are so hard for newbies be careful!
tesla is ready to go to the moon
I’m sorry but which one did you buy??