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Rolling Down with CALM: Turning Losses into Gains

12/01/2015 8:00 am EST


Alan Ellman

President, The Blue Collar Investor Corp.

Citing a real world trade as an example, Alan Ellman, of, demonstrates how it can benefit the options trader to always be prepared with a secondary exit strategy plan if his initial plan cannot be implemented.

Exit strategies for both covered call writing and selling cash-secured puts is one of the three required skills for maximizing investment returns. Whether we are mitigating losses, turning losses into gains, or enhancing winning positions to even higher levels, we must have the capability to take advantage of all position management opportunities. In this week’s article I will highlight a rolling down strategy I used in my personal portfolio for the November contracts for Cal-Maine Foods, Inc. (CALM).

Trade Overview

Click to Enlarge

1: October 19, 2015

  • CALM trading at $60.02
  • Sell-to-open the $60.00 at $3.75

2: October 26, 2015 and October 27, 2015

  • Ex-dividend date captures a premium of $0.98 per share (October 26)
  • Share price decline is partially due to ex-date
  • Buy-to-close the $60.00 call at $0.80 adhering to our 20% guideline
  • Initial goal is to hit a double

3: November 10, 2015

  • Share price does not accelerate adequately to hit a double so we move to plan B…rolling down
  • Roll down to the $57.50 strike generating a premium of $1.40

Price Chart for the November $60.00 Call

Click to Enlarge

Note the following:

  1. $60.00 call sold at $3.75
  1. $60.00 closed at $0.80
  1. Option price does not accelerate enough to justify hitting a double

Price Chart for the November $57.50 Call

Click to Enlarge

Rolling down ten days prior to contract expiration allowed us to generate a higher premium than the cost-to-close ($1.40 versus $0.80) and afford us some downside protection. This is an excellent example of how we should always be prepared with a secondary exit strategy plan (rolling down) if our initial plan (hitting a double) cannot be implemented.

Final trade results (trade commissions omitted…use an online discount broker)

  • Unrealized share loss: $60.02 – $56.77 = (-)3.25
  • Option credits: $3.75 + $1.40 = $5.15
  • Option debit: (-) $0.80
  • Dividend capture: $0.98
  • Net position after contract expiration: + $2.08 per share or $208.00 per contract


After entering our option-selling trades we must immediately enter into position management mode. Most of the time, exit strategy execution will not be necessary but when it is, it is imperative we take advantage of these opportunities. In the case of CALM for the November contracts, we used covered call writing, our 20% guideline, and then the rolling down strategy to turn a share loss of $3.25 per share into a net position gain of $2.08 per share. Mastering all three of the required skills (stock selection, option selection, and position management) is what sets Blue Collar Investors apart from all the other option-sellers.

By Alan Ellman of

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