What is a good price to “Roll” a Covered Call?

Asked by: Andrew Reunion

What is a good price for covered calls?

But when CVM shoots up to $40 at expiration, the call option that you sold for just $1 would now be worth $40 – $35 = $5 per contract. At 100 shares per contact, that’s $500.
And now, you can start trading.

TRIL in one month Minimum premium for entering a covered call in TRIL
6.50 7.02
7.00 6.53
7.50 6.06
8.00 5.58

Should you roll covered calls?

In general, you should consider rolling a covered call if you think that the underlying stock’s move higher was temporary. Otherwise, you might be a lot better off simply taking the loss on the covered call and then starting over fresh during the next month where you can be more conservative with the option dynamics.

Do you lose money rolling a covered call?

Every time you roll up and out, you may be taking a loss on the front-month call. Furthermore, you still have not secured any gains on the back-month call or on the stock appreciation, because the market still has time to move against you. And that means you could wind up compounding your losses.

Why would you roll a covered call?

Rolling down and out involves buying to close an existing covered call and simultaneously selling another covered call on the same stock but with a lower strike price and a later expiration date. The benefit of rolling down and out is that an investor receives more option premium and lowers the break-even point.

Can you live off covered calls?

Compared to a strictly dividend portfolio, you could live off about 1/4 as much equity with covered calls. Depending on your risk tolerance, you might get by on even less. This works well during neutral to upward markets, during which an 18% annual yield (including dividends) is reasonable and even conservative.

What is the downside of covered calls?

There are two risks to the covered call strategy. The real risk of losing money if the stock price declines below the breakeven point. The breakeven point is the purchase price of the stock minus the option premium received. As with any strategy that involves stock ownership, there is substantial risk.

How do I rollover a covered call?

Rolling a covered call is a subjective decision that every investor must make independently. Rolling up involves buying to close an existing covered call and simultaneously selling another covered call on the same stock and with the same expiration date but with a higher strike price.

When should you roll a call option?

An options roll up closes out an options position in one strike in order to open a new position in the same type of option at a higher strike price. A roll up on a call option or a put option is a bullish strategy, while a roll down on a call or put option is a bearish strategy.