Analyzing a Covered Call Trade Over 2 Expiration Cycles: A Rea-Life Example with Interactive Brokers Group (Nasdaq: IBKR)

Covered call writing exit strategies can involve trade adjustments over 1 or more expiration cycles. This article will analyze a series of trades shared with me by Ken, where the share price of IBKR declined after entering the trade and a decision to retain the shares for the next cycle and the (now) out-of-the-money call was rolled out to a later date expiration. Ken’s IBKR trades 11/2/2022: Buy 200 x IBKR at $80.30 11/2/2022: STO 2 x 11/18/2022 $80.00 calls at $2.52 11/11/2022: BTC 2 x 11/18/2022 $80.00 calls at $0.25 as share price declined to $75.06 11/21/2022: STO 2 x 12/16/2022 $80.00 calls at $0.80 (rolled-out but not at the same date for each step) Questions to analyze How do we enter these trades into the Trade Management Calculator (TMC) or another spreadsheet? How many spreadsheets are required? How are these trades archived in our spreadsheets? Could these trades have been better managed to create opportunities to mitigate current losses? Analyzing our trades make us all better investors and the learning process never ends. TMC entries & calculations IBKR: Initial Entries and Final Calculations + Rolling Initial Calculations The screenshot shows both trades in the same image for easier viewing but, typically, we would use 2 separate spreadsheets based on the 2 expiration dates. As an example: TMC_11-18-2022 TMC_12-16-2022 Note the following: Top section: Initial covered call trade entries Initial rolling-out trade entries Middle section: Initial calculations of both trades, before entering share loss at the time of the “roll” Brown cells: Initial covered call trade calculations (2.78%, 34.93% annualized) Yellow cells: Initial rolling-out calculations at the time of the roll (this is where the 2nd trade stands now) Bottom section: Final results of initial covered call trade, after closing the first short call and prior to rolling The exit strategy is named (buying back call and keeping the stock) The cost to buy back the call is entered ($0.25) The final price prior to rolling is entered ($75.06) Final loss is calculated in the pink cell for the initial trade (3.7%) and we move on to the (now) rolled-out trade Evaluating the trade decisions: Our thought processes On 11/11, why was I bullish on IBKR that motivated retaining the shares? If we can think of no reason, the BTC and retain shares decision should be re-evaluated Prior to the last 2 weeks, after closing a short call (usually the result of breach of the 20% guidelines), should waiting to “hit a double” opportunity been considered (yes), rather than rolling-out? If share price did not recover, should rolling-down in the same expiration cycle be considered in the last 2 weeks of the contract or, perhaps, selling the stock (yes)? Were the 20%/10% guidelines breached (yes, but BTC was at 10%, should have been closed earlier at $0.50 … fortunately, did not miss out on any exit strategy opportunities)? If a decision to roll-out to the 12/16/2022 expiration was made after closing the short call, should that have occurred on 11/11/2-22, rather than 11/21/2022 to capture 10 additional days of time-value premium (yes) Discussion By forcing ourselves to associate a rationale for every trade or trade adjustment decision, we will allow ourselves to make non-emotional trades based on sound fundamental, technical and common-sense principles. Premium Member Benefits Video: This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here. For video explanation, click here. 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: Hey Alan, I was looking at your recent example using the calculator with AAPL and saw you were using much deeper ITM LEAPS. I tried that and got the YES. Thanks again for your help. You are the consistent authority in this field, and I have found myself coming back to your material. Much appreciated!!! Best regards, Doug ______________________________ Upcoming events 1. American Association of Individual Investors; Austin-San Antonio Chapter Private webinar for chapter members only. Tuesday May 30, 2023, at 8 PM ET For investment groups seeking private webinars, send an email request to: info@thebluecollarinvestor.com 2. Mad Hedge Investor Summit June 14th at 11 AM ET – 12 PM ET Exit Strategy Choices After Exercise of Cash-Secured Puts When we sell cash-secured puts, we are undertaking the contractual obligation to buy shares at the strike price by the expiration date. Typically, we only sell puts on elite-performers that we would be agreeable to own in our portfolio. This presentation will analyze 4 potential exit strategy opportunities to consider should the put option be exercised. Information on the following strategies will be highlighted: Selling the stock Holding the stock in our long-term buy-and-hold portfolio Write a covered call (PCP or “wheel” strategy) Implement the stock repair strategy In addition to these strategies, the following topics will also be included in the webinar: Option basics for selling cash-secured puts Option basics for covered call writing Real-life examples Calculations using the BCI Trade Management Calculator (TMC) Event super discount offer There will be information offered to all levels of options trades, from beginners to advanced. Registration link to follow. 3. Your Mid-Year Portfolio Review Virtual Expo June 27th 11:15 AM ET – 12 PM ET Ultra-Low Risk Approaches to Covered call Writing and Selling Cash-Secured Puts Adding Delta and Implied Volatility to existing defensive concepts Covered call writing and selling cash-secured puts are low-risk, option-selling strategies focused on generating cash-flow. Our trades can be structured to represent aggressive or defensive postures or somewhere in between. This presentation will detail how to structure our trades to decrease risk, particularly in bear and volatile market conditions while still generating significant returns. It will also be of interest to investors who have a low personal risk-tolerance but still want to generate higher than risk-free returns. Both Delta (an option Greek) and implied volatility will be spotlighted, and real-life examples will be utilized to demonstrate the process of establishing these conservative trades, while still allowing us the potential to generate significant annualized returns. Registration to follow. 4. Wealth365 Investor Summit July 10th -11th Covered Call Writing: Multiple Applications Based on Current Market Conditions Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ) Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are: Normal to bull markets Bear and volatile markets Low interest-rate environments A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances. Overview of BCI’s 3 best educational packages BCI Package TMC Package NEW: CEO Package More details to follow. Alan speaking at a Money Show event*********************************************************************************************************************** [Image] Here are Some More Investing Tips and Resources. Enjoy! Sponsored [This Could Become Your Favorite Stock In A Recession]( Financial experts are split on the recession. Some deny, some say it’s already started, and some are giving new silly names like a “rolling recession” to try to make sense of it. The fact is much of the market believes a big recession is still coming...[Get the FULL Report Here]( By clicking link you are subscribing to The Investor Newsletter Daily Newsletter and may receive up to 2 additional free bonus subscriptions. Unsubscribing is easy. [Privacy Policy/Disclosures]( [Analyzing a Covered Call Trade Over 2 Expiration Cycles: A Rea-Life Example with Interactive Brokers Group (Nasdaq: IBKR)]( Covered call writing exit strategies can involve trade adjustments over 1 or more expiration cycles. This article will analyze a series of trades shared with me by Ken, where the share price of IBKR declined after entering the trade and a decision to retain the shares for the next cycle and the (now) out-of-the-money call was rolled out to a later date expiration. Ken’s IBKR trades 11/2/2022: Buy 200 x IBKR at $80.30 11/2/2022: STO 2 x 11/18/2022 $80.00 calls at $2.52 11/11/2022: BTC 2 x 11/18/2022 $80.00 calls at $0.25 as share price declined to $75.06 11/21/2022: STO 2 x 12/16/2022 $80.00 calls at $0.80 (rolled-out but not at the same date for each step) Questions to analyze How do we enter these trades into the Trade Management Calculator (TMC) or another spreadsheet? How many spreadsheets are required? How are these trades archived in our spreadsheets? Could these trades have been better managed to create opportunities to mitigate current losses? Analyzing our trades make us all better investors and the learning process never ends. TMC entries & calculations IBKR: Initial Entries and Final Calculations + Rolling Initial Calculations The screenshot shows both trades in the same image for easier viewing but, typically, we would use 2 separate spreadsheets based on the 2 expiration dates. As an example: TMC_11-18-2022 TMC_12-16-2022 Note the following: Top section: Initial covered call trade entries Initial rolling-out trade entries Middle section: Initial calculations of both trades, before entering share loss at the time of the “roll” Brown cells: Initial covered call trade calculations (2.78%, 34.93% annualized) Yellow cells: Initial rolling-out calculations at the time of the roll (this is where the 2nd trade stands now) Bottom section: Final results of initial covered call trade, after closing the first short call and prior to rolling The exit strategy is named (buying back call and keeping the stock) The cost to buy back the call is entered ($0.25) The final price prior to rolling is entered ($75.06) Final loss is calculated in the pink cell for the initial trade (3.7%) and we move on to the (now) rolled-out trade Evaluating the trade decisions: Our thought processes On 11/11, why was I bullish on IBKR that motivated retaining the shares? If we can think of no reason, the BTC and retain shares decision should be re-evaluated Prior to the last 2 weeks, after closing a short call (usually the result of breach of the 20% guidelines), should waiting to “hit a double” opportunity been considered (yes), rather than rolling-out? If share price did not recover, should rolling-down in the same expiration cycle be considered in the last 2 weeks of the contract or, perhaps, selling the stock (yes)? Were the 20%/10% guidelines breached (yes, but BTC was at 10%, should have been closed earlier at $0.50 … fortunately, did not miss out on any exit strategy opportunities)? If a decision to roll-out to the 12/16/2022 expiration was made after closing the short call, should that have occurred on 11/11/2-22, rather than 11/21/2022 to capture 10 additional days of time-value premium (yes) Discussion By forcing ourselves to associate a rationale for every trade or trade adjustment decision, we will allow ourselves to make non-emotional trades based on sound fundamental, technical and common-sense principles. Premium Member Benefits Video: This is a great time to join our premium member community with its stock screening and educational (over 250 videos) benefits. We offer more benefits than ever before. For information, click here. For video explanation, click here. 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: Hey Alan, I was looking at your recent example using the calculator with AAPL and saw you were using much deeper ITM LEAPS. I tried that and got the YES. Thanks again for your help. You are the consistent authority in this field, and I have found myself coming back to your material. Much appreciated!!! Best regards, Doug ______________________________ Upcoming events 1. American Association of Individual Investors; Austin-San Antonio Chapter Private webinar for chapter members only. Tuesday May 30, 2023, at 8 PM ET For investment groups seeking private webinars, send an email request to: info@thebluecollarinvestor.com 2. Mad Hedge Investor Summit June 14th at 11 AM ET – 12 PM ET Exit Strategy Choices After Exercise of Cash-Secured Puts When we sell cash-secured puts, we are undertaking the contractual obligation to buy shares at the strike price by the expiration date. Typically, we only sell puts on elite-performers that we would be agreeable to own in our portfolio. This presentation will analyze 4 potential exit strategy opportunities to consider should the put option be exercised. Information on the following strategies will be highlighted: Selling the stock Holding the stock in our long-term buy-and-hold portfolio Write a covered call (PCP or “wheel” strategy) Implement the stock repair strategy In addition to these strategies, the following topics will also be included in the webinar: Option basics for selling cash-secured puts Option basics for covered call writing Real-life examples Calculations using the BCI Trade Management Calculator (TMC) Event super discount offer There will be information offered to all levels of options trades, from beginners to advanced. Registration link to follow. 3. Your Mid-Year Portfolio Review Virtual Expo June 27th 11:15 AM ET – 12 PM ET Ultra-Low Risk Approaches to Covered call Writing and Selling Cash-Secured Puts Adding Delta and Implied Volatility to existing defensive concepts Covered call writing and selling cash-secured puts are low-risk, option-selling strategies focused on generating cash-flow. Our trades can be structured to represent aggressive or defensive postures or somewhere in between. This presentation will detail how to structure our trades to decrease risk, particularly in bear and volatile market conditions while still generating significant returns. It will also be of interest to investors who have a low personal risk-tolerance but still want to generate higher than risk-free returns. Both Delta (an option Greek) and implied volatility will be spotlighted, and real-life examples will be utilized to demonstrate the process of establishing these conservative trades, while still allowing us the potential to generate significant annualized returns. Registration to follow. 4. Wealth365 Investor Summit July 10th -11th Covered Call Writing: Multiple Applications Based on Current Market Conditions Real-life examples with Invesco QQQ Trust (Nasdaq: QQQ) Covered call writing is a low-risk option-selling strategy geared to generating cash flow with capital preservation a key requirement. This presentation will demonstrate how the strategy can be crafted to benefit in all market environments. Market situations highlighted are: Normal to bull markets Bear and volatile markets Low interest-rate environments A popular large-cap technology exchange-traded fund, Invesco QQQ Trust, will be used to establish rules and guidelines to benefit in these market circumstances. Overview of BCI’s 3 best educational packages BCI Package TMC Package NEW: CEO Package More details to follow. 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