Rolling A Covered Call Option Tutorial: Why, When And How - Trading Like A Pro
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- เผยแพร่เมื่อ 4 ก.ค. 2024
- Rolling A Covered Call Option
To get the transcript and MP3, go to: www.rockwelltrading.com/coffe...
Intro: 0:00
What Is Rolling A Covered Call?: 0:34
Why Roll A Covered Call?: 3:10
How To Roll A Covered Call: 7:31
Rolling a covered call is a strategy where you buy back the call that you sold and sell another call option - usually with a different expiration date - at the same time.
In this video, we will discuss the Why, When, and How:
1.) Why would you roll a covered call?
2.) When Should You Roll a Covered Call?
3.)How To Roll A Covered Call?
- Rolling up and out
- Rolling down and out
4.) Can you roll a covered call forever?
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#StockMarket #TradingOptions #OptionsTrading
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Thanks Markus. Great video and explanations. I just started covered calls but I was waiting for them to expire before getting into the next week position. Now I can do this. Learned something new!
Awesome! Thank you for watching! I am glad that you are learning from this. 😉
I must admit the wheel strategy is a great strategy. Thanks for sharing this for all of us.
You are welcome! I am glad that this helps.
I just evolved with your precise explaination!
Awesome! ;)
excellent presentation ..thank you !!!!!!!!
You are welcome! What did you like about the business?
Great explanation thank you!
Thank you. I hope this helps☺️.
Great explanation. Your remark about having a tight bookkeeping system in place is very valid! It’s one of the cornerstones of successful trading and I wouldn’t be surprised if a lot of people neglect this 😢
Yeah, most probably.
Super Complex but I'll learn it eventually
Good stuff
Awesome! Thank you for watching! :)
Very good.
Thank you for watching! :)
The new thumbnails really pop!
Awesome! Thank you for watching! :)
Great Markus as always. Very clear and precise. In your own experience, what do you normally practice - Rolling up provided you collect a credit or Rolling Down. Rolling out only if you are wanting to hold the stock for a longer time. Please share your thoughts. Thanks
Never seen a more beautiful sideway chart in my life - CWH. Buy at $37 and Sell it at $41 and then Short it at $41 and Buy it back at $37. And then combined those with the Call and Put Options and sail to the Sunset in Florida. I am going to get rich with this one stock in 2022 :)
Awesome! 😉
First question is that why did you bough shares at 37.50? There is no support level, you got greedy :). I love your trading style. Keep it up. Learned a lot from you.
Thank you for the video, with spectacular explanations. But I still have a question:
You mentioned you've never Rolled UP & OUT, but do you believe this is a realistic method to make money, to sell weekly covered calls on a continually growing stock?
Nice
Thank you for watching! 😉
As always this is a great video Markus. A caveat, (I think needs to be considered), is that while you can roll the covered calls forever, if they get too far in the money there is no premium. This will happen if the stock/underlying jumps up quickly.
Awesome! Thank you for watching! :)
yea true. its good only when slightly in the money or stocks with high IV
Hi Marcus, congrats again for the very useful video! It's great as always. :)
This week I rolled one of my naked puts on AA for the next week, because with the current market condition probably most of my positions would be assigned and I decided to keep the margin small instead of paying full price for the stock.
Awesome! Thank you for watching! :)
Very well explained. Is there any advantage rolling a call vs doing that via 2 separate orders in terms of commissions? I'm using IBKR. Thanks!
Great video THX much...
I have a question:
While rolling a covered call...
In order to make a profit(net credit)...
1)Is it best to do it on day of expiry or before?
2)Is it best to roll when stock if running up or down?
I have meta calls deep ITM expiring Friday...
Sold To Open 1 contract META Jun 09 2023 240 Call at limit @ $6.65
I don't wanna sell this at 240$ price!
How far out, time, do you write calls?
Love the vid. What annotation tool do you use to draw on the screen? Is it on a iPad?
Hi David, yes, that's an iPad.
Hey hey Markus! Loveeee these videos! What do you think about just letting the options get called away but then selling puts again if you still like the stock instead of rolling? Thoughts?
Usually, you are getting more premium when selling calls than puts since you're selling the calls closer to the money. That's why I prefer rolling calls. Usually, I get 60%+ annualized when rolling calls and only 30%+ annualized when selling puts. Does this help?
@@rockwelltradingservices of course it helps! Thanks so much for the reply (that was quick!) I've been using basically this strategy for the last year and a half and didn't realize there was a name for it! When I started I was doing far away puts with the intention of never getting assigned. We would also even close the trades for a loss to be completely flat at the end of the week... After about 6 months we realized a large percent of our trades were going up and we were collecting a relative small premium so we started selling atm puts instead. This improved it a lot. We did over 60% as well last 12 months and are still looking to improve. Ps I'm also underwater on RIDE! Looks like we choose a lot of the same stocks too! I'll be ordering your book and watching all your videos from now on!!! Let's do 70% in 2022!
@4.57, if you have to buy back .50 option for $1.00 (0.50 loss) , but you receive $1.60 for July 02 contract, isn't the profit per contract 1.10 instead of .60 x 2700?
@1:03 - you sold put options @$37.50 - 27 contracts. Doesn't that put you at risk - obligating you to buy (if exercised) over$101,000 of CWH?
Great video: what are the tax implications i.e of rolling covered calls. Is there an wash sale rule impact here ?
It depends on a lot of factors, e.g. are you trading in a cash or margin account vs. a retirement account, are you living the the US or outside, how often do you trade, how much of your overall income is your trading income, etc. It's best to talk to a CPA about your specific situation.
At what time are roll orders executed? I have a call option which is in the money and expiring today. I placed a roll order on it today but the order has not been placed. Want the roll order to get placed before the option is exercised. I’m using fidelity.
If you place a roll order at market price, and both legs are sufficiently liquid, it normally gets filled very quickly. If you say yours didn’t get filled, I think you may have set a net premium above market, or one of the two legs of the trade didn’t have open interest (remember, your broker needs to find a counterparty for both legs of the trade. If filling one leg of the trade takes a few minutes to get filled, and the price of the underlying moves quickly during thus “waiting to get filled” time, your premium limit may no longer be at market, so it won’t get filled. What I then do is cancel the order after a few minutes and submit a new one at the market price at that moment. Or, I “manually” do the trades myself by buying to close first, and after I got filled, sell to open. Hope this makes sense. Happy trading!
Hi Markus, thanks for thé vert good explanation. I would like to buy tyour Book. How do WE proceed?😊
Hi Harry, you may purchase it here www.rockwelltrading.com/the-wheel-options-strategy-book/
Would you sell a covered call that is below your average? I have a situation that the stock has tank close to 50% and selling covered call does not provide any premium since it is too far from the current price. Is this a risk I should take? Please advise!
You can and if it goes up just roll the call up
Which are the three indicators you are using?
Hi Bastian, I made a video in which I explain it in detail. Take a look: th-cam.com/video/kyoSU8mbx8g/w-d-xo.html
Does this help? 👍
markus.... what spreadsheet do you use to track your options and rolls, also what app you using to trade
I have developed my own trading log, and I've also designed a software tool known as the PowerX Optimizer. You can find additional information about it by visiting this link: bit.ly/3R11efH. When you're ready to give it a try, use the promo code "rockwellspecial" to receive a substantial $2000 discount along with a 30-day, 100% money-back guarantee.
Still, as commented and not answered on the last video: how do you get to add up the credit and completely disregard the premium you paid for the call you roll?
Only benefit, unless you can show otherwise, is that you profit from additional stock gains with a higher strike
If you roll for a credit, it really doesn't matter what you bought the original option back for. But Markus does cover this around the 4:45 mark of this video. He originally sold the call for a 0.50 credit, and he "rolled" for a 0.60 credit. So based on those two trades he's collected $1.10 in premium even if bought the original option back for a loss.
"Mark Hodge
If you roll for a credit, it really doesn't matter what you bought the original option back for. But Markus does cover this around the 4:45 mark of this video. He originally sold the call for a 0.50 credit, and he "rolled" for a 0.60 credit. So based on those two trades he's collected $1.10 in premium even if bought the original option back for a loss."
Well Mark, apparently you deleted your comment again. Indeed, the original credit does not matter. As long as you don't add it up and say you get "additional credit". As long as there is not an explanation on why you would add them up , I'm not buying it and is quite misleading to new option traders imho - as long as the original option is in the negative at least. If it's not, you might as well close it at a profit and open a new one, which also seems to be the easier route for new option traders
If you sell a call at .50 then buy back for 1.00 (-.50 total) and sell another call for 1.50, you make 1.00.
((.50 - 1.00) + 1.50) = 1.00
He says its a net of $0.60, i think the other $1350 he talks about is collected from the PUT he sold which got assigned. So for rolling he gets a extra $270 for the next week.
I think you would need to roll for a higher strike to make up for the extra week of holding the stock.
Hello, I love the videos. You helped me make $2194 in my first week of trading covered call options. One question I have on rolling covered call options. So, when I rolled the covered call options, I got a credit, and from this credit, I paid the “buy to close” and after that was paid, what was leftover was deposited in my account. How is this taxed?
Congratulations! That's great :-)
And I did a video on trading and taxes. Take a look: th-cam.com/video/yaTgAp9EZAE/w-d-xo.html
Does this help?
Hi Markus,
Ich habe eine Frage.
Welchen 3 Indikatoren benutzt du als Hilfsmittel?
Gruß Balazs
Hallo Balazs, hier ist ein Video in dem ich es im Detail erklaere: th-cam.com/video/kyoSU8mbx8g/w-d-xo.html
Gruss - Markus
On your Final Example when you roll down to $38.50.. instead of getting assigned can you roll up and out and collect even more premium ?
When you roll up, you will get LESS premium. Often you can only roll the expiration with the same strike OR roll down.
That was a great explanation, I liked it, but I’m still confused about it
What part are you confused about? Have you seen my latest live session?
@@rockwelltradingservices Hi, I usually watch your lives %90 of the time, I don’t know if I can use the wheel strategy with $27k account or not. Please refer me with link so I can get in to it please. Thank you in advance
Hi Bob, here is my latest live episode th-cam.com/video/3BGeRPT2KSU/w-d-xo.html
A $50 premium on $3,750 per call is actually a very low return. It equates to 1.32% per call on your investment. I try to get premiums no lower than 2% on the investment. Still... any return is a good return.
Awesome! Thank you for watching!
You're Welcome... thanks for sharing the videos!@@rockwelltradingservices
Can you discuss the taxes on the premiums and capital gains in your next video?
You need to talk to your CPA about YOUR specific situation since it is probably VERY different than mine. Here are some guidelines: th-cam.com/video/yaTgAp9EZAE/w-d-xo.html
Does this help? 👍
@@rockwelltradingservices Yes, thank you.
😊 You are welcome! I am glad that this helps!
Thank you for your video's. Wheel strategy is great. However, i have a question. If you are assigned stocks from your puts and the stock goes down a lot, do you sell covered calls at lower than your purchase prices? What if your purchase prices is a lot higher than the current price and the premiums are very very low? Do you sell calls at say 10-15% than current price
No, I don't sell calls below my assigned stock price. If the stock keeps moving lower, I'm doing THIS: th-cam.com/video/o70hJ53LzDQ/w-d-xo.html
Let me know if this makes sense. 👍
@@rockwelltradingservices Makes perfect sense. Thanks for your response !
😊 You are welcome! I am glad that this helps!
@@rockwelltradingservices u
who set up the price for a call option?
It's calculated based on the Black-and-Scholes model and market makers are offering bids and asks. 👍
What happens when I sell covered call below the stock price. I see the more premium if I sold cc below stock price.
@Tom Lee
Let me add to what John said. Always take into consideration the price you paid for the stock. You wouldn't want to sell covered calls with a strike below your purchase price unless you know how and when to roll the covered call up to a higher strike with a farther out in time expiration, for a net credit. You wouldn't want to lose money by having your stock called away for less than you paid for them.
What you are describing is selling an in the money covered call. If the covered call is STILL in the money, your shares will be called away and you will be paid the strike price for the shares. You also got the premium you received when you sold the covered call. Your profit is the EXTRINSIC value of the premium.
The strategy of selling in the money covered calls, makes you money during a falling stock price. It also helps preserve your capital by paying it to you in the form of the INTRINSIC value of the premium.
The strategy of selling in the money covered calls, limits your profits, to the EXTRINSIC (time) value of the premium you collected, during a rising stock price. You give up all gains on a rising stock price.
How do you deal with taxes
I have an accountant for that. 😊
Seems you like trading lots of 27 contracts. Any fundamental reason or just personal preference?
Good question. But the number of contracts depends on the strike price that I'm trading since I'm allocating a certain amount of my account to each trade. So if you see 27 a few times, it's just a coincidence. Does this help?
Yeah, if you happened to have over 100k at your disposal, you can buy 2700 shares of that stock and then sell 27 covered calls.
Stock trading is like a relationship. You don't want to get assigned, unless you plan to do so...
Lol! That is good way to put it.
Hi Marcus, At minute 5:35 you start explaining possible outcomes after rolling the covered calls to collect the .60 in premium, however, I'm not sure why you're including $1,350 as profit from before when those calls were the ones that were rolled over... isn't the profit JUST the $1,620 from the rolled calls + 4,050? Not understanding how you got to 7,020 ... thanks a lot for your time
He already has pocketed the original 1350 in premium..he then did the rolling up which gained another 60 dollars per contract so 1350+1620+4050=7020
That’s wrong he has to buy back the first call
Peso, you are correct. 7020 is nett premium collected which is only half the story. The true profit is derived by minusing the cost of closing these contracts. Which would be much lesser than 7020 considering the first covered call incurred a 50% loss already.
- what if stock gaps down massively over the weekend!
Yea, that’s the risk of being long. No free lunch. You could hedge that, but also that comes at a cost.
Help my friends….Robinhood is not letting me roll any of them my covered calls. They won’t let me do anything. It’s like they want me to go broke!
Hi! Did you reach out to their customer service? Unfortunately I am not a lawyer so you might need one if you are planning to take legal action.
What if the call or Put goes Against u pls show the down side not just the upside
What do you mean?
When you sell a put and it goes against you, you're getting assigned and own the stock. And when you sell a call and it goes "against" you, you're getting called away. Pretty straight-forward.
@Dave Bercovicz
When you sell a put and it goes against you, you're getting assigned, and own the stock at the puts' strike price. If the shares you now own should continue to fall in price, you may end up holding the shares for quite some time, while showing a paper loss on the shares. The share price may end up too far below your cost basis, to make it worth your while to sell covered calls.
And when you sell a covered call, and it goes against you, that expression usually means the share price went far above your call strike price when your shares got called away at the strike price. You may end up feeling like you lost out on the huge price increase, that went above your strike price.
When deciding to follow any strategy, you must decide what your goal is, BEFORE using that strategy. Income, capital gains, mix of both.
If you don't want to roll options when the option goes against you, then don't sell close to the money options, sell far out of the money options, to REDUCE the chances of assignment.
If you don't want to lose the shares from selling covered calls, and you don't want to roll covered calls, then don't sell covered calls.
During a bull market or a sideways market, Markus advocates a mix of capital gains, AND good premium, when he suggests selling a slightly out of the money covered call, that is above your purchase price.
During a down trending market, you can sell at the money covered calls for max Extrinsic premium, with less chance of getting assigned.
Man, that's some heavy stuff right here. Let it sink in. Why would anyone buy options, if you can sell?
thank you. sincerely
folks are stupid, how come this video has only 5k views?...lol
Thank you for your support, Zhen DING! :) You are awesome!
I am selling covered calls now but I notice that my account balance keeps going down. Why? Where is the money that I am collecting?
Hi Carine, if the underlying stock is dropping, your account balance will go down. And if it moves up, the account balance goes up. It all depends on the stock. Does this make sense?
Because when you sell call you receive the bid price but to get out of the trade before expiration you would need to buy back the call for the ask price.For example
You buy 100 shares of XYZ stock at 100=$10,000
Next you sell 1 covered call option and receive $4 per share( bid price)=$400
Next the reason you dont see balance go to $10,400 is because they are saying you would need to buy back option before being able to sell your 100 shares.Buying back option right away would need to be at ask price.Lets say $4.20 per share =$420. So your balance will show $9980 ( $10,000+$400-$420=$9980 ) So at expiration that -$420 will be removed from your account. So the -$420 means nothing unless you decide to buy back option before expiration.
The music in the background is annoying
Thank you for the feedback. We will try to tone it done next time.
as inexperienced I did not understand the example and the rolling....maybe looking in other videos should be clearer
This is not a trading101 video, maybe it helps if you watch starting with this playlist th-cam.com/video/aD4AzmtRQY4/w-d-xo.html
so that's how you make money... you sel 27 contracts instead of 1.. lol
That is right!
If you get stuck with CWH just HODL and tell people you're sure it's going to the moon. That's what I do.
Sorry, but this video didn't speak to me at all. Too complex. Buy this for this profit. Sell this for this profit. Bottom line, it just seem like a bunch of gobbly goop. I couldn't understand what he was doing at all. I need slower, step-by-step. Too much, too fast and I really NEED to know this information. Sorry. Darn.
Hi Cody, you are watching the short version of this video. If you want videos for beginners here is the playlist for that th-cam.com/video/gjPBlRHru8c/w-d-xo.html
This may seem complex at first (and it is), but trust me, learning how derivatives work, may turn out to become the best investment of your time and effort of your (financial) life.