Using the Elite-Plus Calculator for “Hitting a Double” Results: A Real-Life Example with Redfin Corp. (NASDAQ: RDFN) – July 26, 2021
One of the covered call writing exit strategies available to us is hitting double. 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 2 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: Entering trade data into the Elite-Plus Calculator
RDFN: Trade structuring initial calculations
The initial 3-month time-value return is 13.30%, 53.2% annualized.
Calculations after hitting a double
The initial 3-month time-value return increases to 14.80%, 59.2% annualized
Discussion
To calculate hitting a double results using the Elite-Plus Calculator, the only stat that needs to be adjusted in 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.
Author: Alan Ellman