One of the covered-call writing exit strategies available to us is ”hitting a double,” explains Alan Ellman of The Blue Collar Investor.
In March 2021, Duane shared with me a trade he executed using this strategy and inquired about how to enter this series of trades into the BCI Elite-Plus Calculator.
What is hitting a double?
This position management tool is implemented when a stock price decline causes the option premium to decline to the 20%/10% thresholds. This guides us as when to close the original short call. Our goal is to watch for share-price recovery and then re-sell the same option at a (now) higher price thereby generating two income streams in the same contract month with the same stock and cash investment.
Duane’s hitting a double trades
- 2/25/2021: Buy RDFN at $79.05
- 2/25/2021: STO the 5/21/2021 $80.00 call at $10.55
- 3/5/2021: BTC the 5/21/2021 $80.00 call at $2.12 (20% guideline)
- 3/11/2021: STO the 5/21/2021 $80.00 call at $3.25
RDFN: Data Entry
RDFN: Trade structuring initial calculations
RDFN: Initial Calculations Using the Elite-Plus Calculator
The initial three-month time-value return is 13.30%, 53.2% annualized.
Calculations after hitting a double
RDFN: Calculations After “Hitting a Double”
The initial three-month time-value return increases to 14.80%, 59.2% annualized
To calculate hitting a double results using the Elite-Plus Calculator, the only stat that needs to be adjusted is the net option premium. The time it takes to execute these exit-strategy maneuvers is minimal, yet the results will have a significant positive impact on our overall results.
Learn more about Alan Ellman on the Blue Collar Investor Website.