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Rolling-down is one of our frequently used covered call writing exit strategies. During the January 2022 contracts, there was a 5% market decline due to COVD-19, inflation and interest rate concerns. This article will highlight a rolling-down strategy I implemented with Healthcare Select Sector SPDR (NYSE: XLV) in one of my portfolios where a 4.68% share loss was mitigated down to a 2.8% loss. The BCI Trade Management Calculator will show trade entry, initial calculations, trade adjustments and final results.
Rolling-down trade overview
- 12/20/2021: Buy 200 x XLV at $135.83
- 12/20/2021: STO 2 x $137.50 1/21/2022 calls at $2.20
- 1/7/2022: BTC 2 x 1/21/2022 $137.50 calls at $0.44 (20% guideline)
- 1/11/2022: STO 2 x 1/21/2022 $136.50 calls (rolling-down) at $0.80
- 1/21/2022: XLV shares worth $129.47 (a loss of 4.68%)
BCI Trade Management Calculator: XLV trade entry
XLV: Covered Call Trade Executed
BCI Trade Management Calculator: XLV initial calculations
XLV: Initial Covered Call Writing Calculations
Rolling down with XLV (broker screenshots)
XLV Roll-Down Trade
BCI Trade Management Calculator: XLV adjustment entries
XLV: Rolling-Down Trade Entries
BCI Trade Management Calculator: XLV final results
XLV: Rolling-Down Final Calculations
Discussion
Writing covered calls and then mitigating losses by rolling-down decreased a 4.68% loss in share value down to an unrealized loss of 2.80% due to an option net credit of $512.00 or 1.88%. Position management is the 3rd of the 3 required skills (along with stock and option selection) that must be mastered before risking even one penny of our hard-earned money.
New Rolling-Out with the Trade Management Calculator video
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Selling Cash-Secured Puts
Exit Strategy Choices After Exercise of Cash-Secured Puts
Selling cash-secured puts is a low-risk option-selling strategy which generates weekly or monthly cash flow by agreeing to buy shares at a price we determine, by a date we determine. In return for undertaking this obligation, we are paid a cash premium. We only sell puts on shares we would otherwise want to own and, if exercised, and shares are put to us, they are purchased at a discount from the price when the put trade was initiated.
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Image and article originally from www.thebluecollarinvestor.com. Read the original article here.