How to Enter and Archive a Covered Call Trade with 1 Exit Strategy that is Closed at Expiration – June 19, 2023
After entering our covered call trades, we immediately go into position management mode. Frequently, we can take advantage of a covered call exit strategy opportunity, sometimes more than one. This article will review a trade shared with me by Jim, where his covered call trade was entered, rolled-down and then closed on expiration Friday. Specifically, we will address how the trade and adjustments are entered and final calculations are derived using the BCI Trade Management Calculator (TMC).
Jim’s trades with Scorpio Tankers Inc. (NYSE: STNG)
- 12/22/2022: Buy 100 x STNG at $53.00
- 12/22/2022: STO 1 x 01/20/23 $55.00 Call at $3.00
- 01/04/2023: STNG trading at $47.16
- 01/04/2023: BTC 1 x 01/20/2023 $55.00 Call at $0.60 (20% BTC) and roll down to the $50.00 Call the next day
- 01/05/2023: STO 1 x 01/20/2023 $50.00 Call at $1.60
- 01/20/2023: BTC 1 x 01/20/2023 $50.00 Call at $ .15 (10% guideline)
- 01/20/2023: Sold STNG at $49.60
Dilemma (not really)
The TMC allows us to enter of trades, generate initial calculations and adjust trades (if exit strategy opportunities arise) and then calculate final post-adjusted returns. At this point, the series of trades can be entered in the same line in the spreadsheet. The question becomes how do we integrate the final BTC of the 2nd short call ($50.00 strike) and sale of the shares into the TMC spreadsheet? The screenshot will show how this is easily accomplished on a single line of the spreadsheet.
The TMC Calculator with STNG trades
The process explained:
This is a single line trade using the Trade Management Calculator.
In the screenshot, each section of the horizontal sections is stacked vertically so it can be read in a single image.
Top-to-bottom:
- Initial trade entries & calculations … this part is easy.
- Rolling-down: I would deduct the final BTC ($0.15) from the STO price ($1.60) to get a final STO stat of $1.45 (top red arrow). An explanatory notation can be made in the Trade Journal section (bottom of image)
- Final results: A net option profit of $385.00 (7.26%) and a net realized share loss of $340.00 (6.42%), resulting in a net profit of $45.00 (0.85%, bottom red arrow)
Discussion
When 1 exit strategy is implemented and then closed prior to contract expiration, the trades can be entered and managed on 1 single line of the TMC. Using the Trade Journal section of the spreadsheet can be especially useful when reviewing the trades at a later date.
If a 2nd exit strategy is implemented, we will use a 2nd line in the spreadsheet and use the capital adjustment section to ensure that our final calculations are 100% accurate.
Author: Alan Ellman