Entering and Adjusting Our Covered Call Trades Using the BCI Trade Management Calculator: A Real-Life Example with WBA – November 21, 2022
Entering, managing and archiving our covered call writing and put-selling trades are critical to our overall success as well as allowing us to learn and benefit from our investment history. To demonstrate how to achieve a high level of organization and management of our trades, this article will highlight a real-life series of trades with Walgreens Boots Alliance, Inc. (Nasdaq: WBA), shared by a BCI member, using the BCI Trade Management Calculator.
WBA trades from 4/25/2022 – 5/19/2022
- 4/25/2022: Buy 200 x WBA at $44.30
- 4/25/2022: STO 2 x 6/17/2022 $47.50 calls at $0.82
- 4/29/2022: BTC the 6/17/2022 $47.50 calls at $0.16 (20% guideline)
- 4/29/2022: Buy 100 x WBA at $42.82
- 5/16/2022: STO 3 x 6/17/2022 $47.50 calls at $0.37 (hitting a double with 200 of those shares)
- 5/19/2022: BTC 2 x 6/17/2022 $47.50 calls at $0.52 (ignoring our 20% guideline with 200 shares)
- 5/19/2022: STO 2 x 6/17/2022 $45.00 calls at $1.25 (rolling-down with 200 shares)
Initial trade entries, trade adjustments, and initial trade returns
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- The initial trade is entered for 200 shares
- The 2nd trade is entered for 100 shares on a separate row
- The rolling-down trade for 200 shares is entered with the option premium being a net credit of $0.73 ($1.25 – $0.52)
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- The initial adjustment was selected as “buy back option/keep stock”
- Once the option was re-sold at the same strike, that was changed to “hitting a double/keep stock”
- The “hitting a double” aspect is considered closed and the spreadsheet will reflect the returns for that aspect of the series of trades for these 200 shares. No further entries are needed
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- The rolling-down aspect of the series of trades with the initial 200 shares is entered on a separate line
- The cost-basis remains the original $44.30, and the option credit is the difference between the BTC and STO premiums, $0.73 in this case
- The spreadsheet will reflect an additional investment of $8860.00 despite the fact that we are still working with the original $8860.00 investment for the 200 shares
- The total capital invested is shown as $22,002.00 when it should be $13,142.00. This will require an entry in the capital adjustment section
Capital adjustment to maintain the accuracy of our calculations
Entering a negative $8860.00 will result in our total capital invested to be an accurate figure, $13,142.00, in this case.
Discussion
Proper trade entries and adjustments will result in accurate initial and final calculations as well as assist us in learning from and archiving our trades in a user-friendly and time-efficient manner. The BCI Trade Management Calculator was developed specifically for these reasons and has an unparalleled ability to accommodate a myriad of trade adjustments and scenarios.
Author: Alan Ellman