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  • Rolling-Up in the Same Contract Month: A Real-Life Example with Ford Motor Company (NYSE: F)

    Rolling-up in the same contract month is generally not a covered call writing exit strategy implemented in our BCI methodology. One of our members shared with me a series of trades he executed with F where a 6-month call was written in August 2021 for a 2/18/2022 expiration. This article will breakdown the mathematical components of the trade and offer considerations to elevate the returns to an even higher level.

    Real-life rolling-up trade with F

    • August 2021: Buy F at $12.00
    • August 2021: STO the 2/18/2022 $14.00 call at $0.50 (initial 6-month time-value return = 4.17%)
    • 11/19/2021: F trading at $19/39
    • 11/19/2021: BTC the 2/18/2022 $14.00 call at $5.70
    • 11/19/2022: STO the 2/18/2022 $17.00 call at $3.25 (rolling-up in the same contract month)

    Entering the rolling-up information into the “What Now” tab of the Trade Management Calculator

    F: Rolling-Up in the Same Contract Month

    F: Final rolling-up calculations

    F: Unrealized Final Calculations

    Note that the spreadsheet was developed for rolling-out-and-up in a later contract cycle, but the calculations will also be accurate for the same contract cycle.

    Rolling-up resulted in an additional 3-month return of 3.93% with 12.30% downside protection of that time-value profit. This takes advantage of the fact that there is more time-value in a strike much less deep in-the-money as was the original $14.00 call.

    How to improve this series of trades

    • Using shorter-term expirations will result in greater annualized returns
    • Using shorter-term expirations will allow us to re-evaluate our bullish assumption of the stock on a more frequent basis
    • These trades took us through 2 earnings reports (10/27/2021 and 1/26/2022). The October report resulted in the exponential share appreciation which could have been realized to the investor had the call not been in place. In November, the 1/26/2022 report represented potential risk of a disappointing report

    Discussion

    In November 2021, this was a successful series of trades. However, greater returns and lower risk could have been accomplished by following our BCI rules and guidelines. Two positives resulted from these trades: money was made and lessons learned for future transactions.

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