1

I sold a covered call at 50, with the stock currently trading at 53, and only a few days to expiration.

I can roll out the call for 1.30 credit, but that's less than the in-the-money amount, so it has no extrinsic value. Would I keep any of this credit if the option expires in-the-money?

UPDATE Adding some specific prices:

100 CSOD, market: 53
-1 jan 15 50 call @ 1.05

The call was originally sold for 1.05.
Jan 15 50 call: 3.00-3.50
Feb 15 50 call: 4.50-4.90
  • your numbers a confusing - a 50 call on a 53 stock should be worth a little over 3, not 1.30. Do you mean it's worth 1.30 less than you sold it for? – D Stanley Jan 11 at 21:04
  • You need to provide more specific details. Rolling a call out means using the same strike but to a later expiration. If you do it for a $1.30 credit, then there has to be some extrinsic value. Post some numbers and we'll give you an accurate answer. – Bob Baerker Jan 11 at 21:09
  • @DStanley, I'm rolling an existing in-the-money call at the same strike. So buying back the call for 4.70, and selling the same strike, 35 days out for 6.00. – alekop Jan 11 at 21:38
  • These numbers ($4.70 and $6.00) are different from those in your edited question and the roll out credit in the latter is $1.00 not $1.30 – Bob Baerker Jan 11 at 21:58
  • @BobBaerker, My bad, I misunderstood the numbers in the trading software. I updated the question with the current prices. – alekop Jan 11 at 22:05
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Why not? If the stock trades flat, you can grab $1.50/mo on a $50-$53 stock. This is a huge percent, relatively speaking. If not, you simply get assigned and the stock is gone next Friday.

With your edit, I'd enter the order for $1.45 credit, and lower it if it doesn't fill quickly. You'd only get $1.00 given the bid/asks you showed.

You will likely not make 30%+ /yr for long. One of two things might happen - (a) the stock rises enough that you can't roll the calls out, (b) it drops so much that you can't stay ahead of it, and are in a losing position.

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    It seems that way, because it's a covered call - I won't be buying back the call. But on the other hand, it seems strange to profit on an option that most likely will expire ITM. I mean, I could just keep rolling indefinitely... seems too easy. – alekop Jan 11 at 21:53
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    alekop - it may seem too easy but it's not. Covered calls have an asymmetric payoff. You chase a small potential profit while bearing all of the risk. Two old market expressions describing covered calls are 1) It's often like collecting pennies in front of a steamroller and 2) Most of the time you eat like a bird and occasionally you sh*t like an elephant (note AAPL dropping 90 points in the past few months). – Bob Baerker Jan 11 at 22:25
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If you bought the stock at $50 and sold the Jan 15th 50 call for $1.05 then ignoring commissions, your assigned sale price is $51.05 and $1.05 is your potential profit.

If you buy the Jan 15th 50 call to close for $3.50 and sell to open the Feb 15th 50 cal for $4.50 then you receive a $1.00 credit for the roll out. You are still obligated to sell the stock at $50 and you will have taken in $2.05 in premium, all of which you will keep. Simple ledger form looks like this:

-$50.00

+$ 1.05

-$ 3.50

+$ 4.50

-$50.00

= +$2.05

The B/A spreads on these options are wide. When you attempt to execute the roll, place it as a spread order. You can attempt to split the bid and ask for a larger credit. Work the order. The other advantage of a spread order is that you avoid leg in risk.

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