Calculating Mid-Contract Covered Call Writing Trade Status: A Real-Life Example with Bristol-Myers Squibb Comp. (NYSE: BMY) – December 12, 2022
After entering our covered call writing and put-selling trades, we can calculate the current status of our trades mid-contract with a few simple entries into our Trade Management Calculator. In this article, a real-life covered call writing example with BMY will be highlighted. Hypothetical examples of closing winning and losing trades mid-contract will be detailed utilizing the spreadsheet.
BMY initial trade details
- 7/5/2022: Buy 100 x BMY at $76.84
- 7/5/2022: STO 1 x 7/22/2022 $78.00 call at $0.98
- 7/12/2022: BMY trading at $80.00; $78.00 call option has an ask price of $2.40 (winning trade)
- 7/12/2022: BMY trading at $74.00; $78.00 call has an ask price of $0.25 (losing trade)
Option-chain for BMY on 7/5/2022
Initial trade entries and calculations
- Initial time-value return is 1.28%
- Annualized initial return is 25.86% based on an 18-day trade
- Additional upside potential of 1.51% if BMY moves up to or beyond the $78.00 strike
Mid-contract status of winning and losing positions
When BMY moves to $80.00 (top rows)
- Net option loss of 1.85%
- Net stock gain of 4.11%
- Total $ gain of $174.00 per-contract
- Total % gain of 2.26% from 7/5/2022 to 7/12/2022
When BMY moves to $74.00 (bottom rows)
- Net option gain of 0.95%
- Net stock loss of 3.70%
- Total $ loss of $211.00
- Total % loss of 2.75% from 7/5/2022 to 7/12/2022
Important to note
- Be sure the mid-contract status calculations are deleted and final closing entries made to assess actual final contract calculations
- Mid-contract status calculations can be computed multiple times during the contract with no limitations
- The mid-contract share price can also be entered into the “Final Unsold Stock Price [$/Sh]” column. The calculations will be the same
Discussion
The current status of our option-selling trades can easily be determined with a few simple entries into the BCI Trade Management Calculator. Based on these calculations, we can make decisions regarding the need for trade management implementation.
Author: Alan Ellman