Rescuing A Long-Term Holding from Deep In The Money Covered Calls

Sometimes investors buy stock as a core position for long-term gains but they sell covered calls when they believe the stock has topped only to find out that the stock is in an uptrend. This uptrend leaves their covered calls in the money and the stock at risk of assignment.

The investor buys back the covered calls and rolls them higher and further out in time to keep rolling up for net credits. But the stock keeps climbing continually leaving the covered calls deep in the money. Eventually the stock is far above their covered calls leaving the stock exposed to exercise and the investor holding covered calls on the very last available month and perplexed as to what to do since the stock keeps climbing placing their covered calls even deeper in the money.

This happened recently to an investor who wrote to me about his Bristol Meyers Stock trade. (Stock symbol is BMY). This article looks at a number of ways for investors to approach the problem of holding deep in the money covered calls while their stock continues to march higher earning more gains which the covered call holder is not profiting from.

This is a FullyInformed Members Strategy Article that studies 4 different rescue strategies which a long-term investor could use should a long-term stock holding get caught with deep in the money covered calls and is at risk of exercise. This strategy article is 8 pages in length with 3300 words.

Rescuing A Long-Term Holding from Deep In The Money Covered Calls

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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. You always trade at your own risk. The author assumes no liability for your investment decisions. Read the full disclaimer.