Using the BCI Trade Management Calculator to Mitigate Losses – November 06, 2023
Our covered call writing positions are at risk when share price declines substantially. We do have, however, our exit strategy arsenal to protect against catastrophic losses. This article will show a real-life example of such a scenario with Novo Nordisk A/S (NYSE: NVO), in a series of trades shared with me by a BCI Premium Member.
NVO trades start-to-finish
5/22/2023: Buy 500 x NVO at $170.48
5/22/2023: STO 5 x 6/16/2023 $170.00 calls at $4.96
5/30/2023: BTC 5 x 6/16/2023 $170.00 calls at $0.45
6/1/2023: STO 5 x 6/16/2023 $157.50 calls at $4.00 (rolled-down)
6/1/2023: BTC 5 x 6/16/2023 $157.50 calls at $2.00
6/1/2023: Sell 500 shares of NVO at $154.78
Price chart of NVO showing the 3 trade dates
Trade entries & calculations using the BCI Trade Management Calculator (TMC)
Note that the final calculations (lower left of screenshot) reflect a loss for the 500 shares of $4595.00 or 5.39%. Could this loss have been mitigated? Yes!
The spreadsheet shows our exit strategy guideline price points. These were not adhered to. For example, the 1st BTC was at $0.45, not $0.99. This was an opportunity lost.
When viewing the price chart, we see at least 1 additional rolling-down opportunity prior to 5/30/2023, perhaps 2. Also, using the 7% guideline would direct us to sell the shares at $158.55, rather than $154.78.
Discussion
All in all, following the BCI exit strategy guidelines would have mitigated losses significantly. Not all trades will be winning ones. One of our missions is to utilize position management to mitigate losses and enhance gains.
Author: Alan Ellman