Alan answers a question posed by Duminda, who asks:

I am trying to understand why I am getting a negative ROO on a trade I made with the ETF BOTZ. First, I bought 100 shares for $27.13 and sold the February $27.00 in-the-money strike for $0.75. The option expired worthless and I then sold the March $26.00 out-of-the-money strike for $0.30. That option also expired worthless and the current price is $25.00, a drop of 8.2% from $27.13. I wanted to sell the April $26.00 option for $0.25 but the Ellman Calculator shows a negative ROO of (-)3.4% with downside protection of 4.2%. Can you help me understand how I get a negative ROO and why I would make such a trade?
Thank you.


It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#147, “Why is the Ellman Calculator Showing Negative Returns?”

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