When we enter our covered call trades, we make our stock and option selection based on our initial time-value return goal (2% – 4% for 1-month expirations in my case). If the strike moves deep in-the-money as share price accelerates, we may consider closing both legs of the trade or rolling the option out or out-and-up. Rolling options is generally reserved for scenarios close to 4 PM ET on expiration Friday. Mid-contract, we may consider the mid-contract unwind exit strategy where we close both legs and enter a completely new trade with a different underlying. On June 19, 2019, Mazin shared with me a trade he executed involving 25 contracts of Facebook, Inc.  (NASDAQ: FB). This article will evaluate whether the time-value cost-to-close aligns with the initial time-value return goal.

Mazin’s trade

  • 6/5/2019: FB trading at $165.00
  • 6/5/2019: Sell-to-open the June 28, 2019 $165.00 call at $5.92
  • 6/19/2019: FB trading at $181.92
  • 6/19/2019: The $165.00 call has an ask price of $24.36 

Initial trade construction using the multiple tab of the Ellman Calculator

covered call writing calculations

FB: Initial Trade Calculations

The goal is to generate a 23-day return of 3.6% (ROO) with the understanding that there is no downside protection of that option initial profit (there is a breakeven at $159.08) and no opportunity for additional income resulting from share appreciation. That’s how the trade was constructed… period. Now, with FB trading at $181.92 and 9 days until contract expiration there is an excellent chance that the goal will be realized. The question that remains is whether it makes sense to close the trade or roll the option. Let’s turn to the “Unwind Now” tab of the Elite version of the Ellman Calculator to determine the time-value cost-to-close.

Elite Calculator data entry

covered call writing exit strategies

FB: Entering Data into the “Unwind Now” Tab

Elite Calculator closing results


FB: Unwind Calculations

The spreadsheet shows a time-value cost-to-close of $744.00 per-contract which represents a 4.51% debit, greater than the initial time-value profit generated when the trade was constructed (3.6%). This makes no sense for either rolling the option or closing the entire position (both legs).


In most situations, we reserve rolling in-the-money options as we approach contract expiration so that the time-value cost-to-close approaches zero. We also want the cost-to-close near zero when closing the entire position. In the case, 4.51% is way too expensive. The question we should pose to ourselves is this: Can we generate at least 1% more than the time-value cost-to-close by contract expiration? In this scenario, can we generate at least 5.51% in the next 9 days? Probably not.

Your generous testimonials

Over the years, the BCI community has been incredibly gracious by
sending our BCI team email testimonials sharing stories as to what our
educational content has meant to their families. Moving forward, we have
decided to share some of these testimonials in our blog articles. We
will never use a last name unless given permission:


I’ll be in Orlando for the show. I want to shake your hand. I’ve been following you for two years. One of the smartest men in the industry. Your info is so helpful.

Rich D.

Upcoming events

1. Tuesday March 10, 2020 Long Island Stock Traders Meetup Group

7 PM – 9 PM

Plainview- Old Bethpage Public Library

Covered Call Writing Blue-Chip Stocks to Create a Free Portfolio of Large Tech Companies

2. Wednesday April 8, 2020 Options Industry Council (OIC) Free Webinar

4:30 ET

Covered call Writing to Generate Monthly Cash-Flow:

Option Basics and Practical Application


Market tone data is now located on page 1 of our premium member stock reports and page 8 of our mid-week ETF reports.


Source link