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Rolling on Expiration Friday: When to Hold ‘Em & When to Roll ‘Em

01/08/2020 9:45 am EST

Focus: STOCKS

Alan Ellman

President, The Blue Collar Investor Corp.

Here is an options scenario that requires deciding when to exit or roll-up or out, by Alan Ellman.

A Real-Life Example with Veeva Systems + New Year Discount Offer Expires on Sunday

Position management is the third required skill for our covered call writing and put-selling success. On July 19, 2019, subscriber Larry shared with me a series of trades he executed in Veeva Systems Inc. (VEEV). He astutely “hit a double” and was now looking to roll the option to the following month. 

Larry’s trades and inquiry

  • Bought VEEV @ $165.99 on June 17 and sold a 165 July 19 call @ 7.10
  • On June 26 with VEEV @ $157.68, bought to close the 165 call @ 3.30 for 3.80 profit on call.
  • On July 1 resold 165 July 19 call @ 4.01 with VEEV @ 163.78. Caught the bounce here.
  • On expiration Friday, VEEV trades @ $172.06 with mixed technicals (20/100 EMAs positive, MACD negative). Sold to close the 165 July 19 call. I was looking at either rollout or rollout/up to Aug. 16 (earnings due Aug. 24) to either 165 call @ 9.75 or 170 call @ 6.65. The technicals suggest staying in-the-money. What’s your inclination on this one?

The “What Now” tab of the Ellman Calculator: Information entered

When we are considering rolling-out versus rolling out-and-up, we turn to the “What Now” tab of the Ellman Calculator (see below).

covered call writing exit strategies

The “What Now” tab of the Ellman Calculator: Calculation Results

what now

Discussion

Based on the information Larry provided, we have the following rolling choices:

1. $165.00: 1.67% one-month return with 4.1% protection of that profit
2. $170.00 strike: 2.82% 1-month return with 1.2% protection of that profit

We evaluate our initial time-value return goals, personal risk-tolerance and make a call. It will vary from investor-to-investor. If neither return is appealing, we “allow” assignment and use the cash in a new position with a different underlying on Monday.

Use the multiple tab of the Ellman Calculator to calculate initial option returns (ROO), upside potential (for out-of-the-money strikes) and downside protection (for in-the-money strikes). The breakeven price point is also calculated. For more information on the PCP strategy and put-selling trade management click here and here.

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