Rolling-Out to Impressive Profits: A Real-Life Example with NVIDIA Corp. (Nasdaq: NVDA) – April 18, 2022
Exit strategies for covered call writing will elevate returns and mitigate losses. When share price accelerates dramatically, we can take advantage of these opportunities by rolling our options out or out-and-up. In November of 2021, Calvin shared with me a series of trades he executed with NVDA which demonstrated several rules and guidelines that will enhance our portfolio returns.
NVDA trades from 8/23/2021 to 11/12/2021 as of 11/4/2021
- 8/23/2021: Buy 100 x NVDA at $217.60 (#1 in graph)
- 8/23/2021: Sell 1 x NVDA 8/27/21 $217.50 call at $3.90 (#1 in graph)
- 8/27/2021: BTC 1 x NVDA 8/27/21 $217.50 call at $9.00 (#2 in graph)
- 8/27/2021: Sell 1 x NVDA 9/17/21 $217.50 call at $12.40 (roll-out- #2 in graph)
- 9/17/2021: BTC 1 x NVDA 9/17/21 $217.50 call at $2.80 (#3 in graph)
- 9/17/2021: Sell 1 x NVDA 10/15/21 $222.50 call at $7.00 (roll-out-and-up: #3 in graph))
- 9/23/2021: NVDA Dividend $4.00 (#4 in graph)
- 10/18/2021: 1 x NVDA 10/15/21 $222.50 call expired worthless (out-of-the-money: #5 in graph))
- 10/18/2021: Sell 1 x NVDA 11/12/21 $220 call at $6.40 (#5 in graph)
- 11/4/2021: NVDA trading at $298.01 (#6 in graph)
- 11/4/2021: NVDA 11/12/21 $220 call at $77.88 (#6 in graph)
- All trades occurred between (not including) earnings reports dates (8/18/2021 and 11/17/2021… nice going!)
Graphic representation of NVDA trades
Initial trade structuring and calculations
The multiple tab of the BCI Elite Call calculator shows an initial 1-week time-value return of 1.7%.
Stock and option credits and debits if the $220.00 call is exercised on 11/20/2021
- Stock credit: $240.00
- Total option credits: $3370.00
- Total option debits: $1180.00
- Net stock & option credit: $2430.00
- Initial cost basis: $21,760.00
Final returns if the 11/20/2021 $220.00 call is exercised
$2340.00/$21,760.00 = 11.17%, 50-day return = 81.5% annualized return
Discussion
Although NVDA “went to the moon” during these trades, by rolling the options and following the earnings report rule, an outstanding return was generated during this series of trades.