On Friday the Dow and S&P made new all-time highs and the NASDAQ is within a few points of reaching its old all-time high. The rally over the past several days has left some investors holding in the money covered calls and some with naked calls that were until recently out of the money.
A number of investors emailed seeking some assistance on trying to recover their stock from possible exercise now that their covered calls have ended up in the money. Others have emailed looking for some ideas on handling their in the money naked calls that, if assigned shares, could result in losses.
This brings us to the focus of our Saturday reading list.
Saturday Reading List
For this Saturday’s reading list, I am looking at 4 articles that discuss rescuing in the money covered calls and naked calls.
Rescuing A Long-Term Holding From Deep In The Money Covered Calls
This first article is from May 2013. Sometimes investors buy stock as a core position for long-term gains but they sell covered calls when they believe the stock has topped or stalled only to find out that the stock is in an uptrend or resumes its original uptrend.
This uptrend leaves their covered calls in the money and the stock at risk of being exercised away.
This members’ article looks at 4 different rescue strategies which a long-term investor could implement to try to repair a trade where his stock is at risk of exercise due to being caught with deep in the money covered calls.
This strategy article is 8 pages in length with 3300 words. It focuses on how to rescue stock positions that have had covered calls setup when they were out of the money only to find a quick rally has placed the covered calls into the money and at risk of exercise of the underlying shares.
Understanding Rolling Up Covered Calls For Further Gains and Protection
The problem for most investors is the timing of when to sell covered calls. It is always annoying to sell covered calls just when you think a stock will move lower and then it turns around and pushes higher leaving your covered calls deep in the money.
This has been the case for a number of investors who contacted me today (July 14 2017) as last week the market looked ready to break through 2400 taking stocks lower which would have been a great moment to sell covered calls. Many investors jumped in early with selling covered calls only to find later this week that stocks have pushed higher leaving many investors with in the money covered calls.
This article from November 2013 looks at a simple strategy that can assist for just this type of situation as it focuses on the goal of rolling up covered calls for further gains while still trying to protect the stock position from any sudden changes back to the downside.
This is a members article that is 1700 words in length and requires 6 pages if printed.
Rescuing In The Money Naked Calls
The latest rally to new highs has left some investors holding naked calls that were just a few days earlier, out of the money and now they are caught in the money and at risk of large losses. This article from Aug 2015 was in response to investor questions on how to turn his now, in the money naked calls back into a winning trade.
Investor Questions:
The focus of all trades should be to keep them profitable. To do that often means taking losing trades and turning them into winners. This strategy discussion article on how to repair or rescue in the money naked calls is 1600 words in length and will require 5 pages if printed. It is for members only.
Rescuing Covered Calls In A Crazy Situation
The final article for Saturday reading is from December 2014. An investor got caught with a stock that shot higher by over $21 which normally would be a great thing, but unfortunately he had sold covered calls on all of his stock and wanted to try to earn more from the rising stock than the covered calls allowed.
He spoke with his broker who basically told him that it indeed “was a problem”, but offered no ideas for possible solutions. He then contacted me wondering if I had any ideas on how he could try to profit from the sudden upswing in his stock.
In this article I discuss 3 simple tips on how to approach his “problem” and try to rescue his covered calls for further gains.
I hope investors enjoy these articles. As always, you can post any questions to me regarding these articles through this form on my website. By using the form you can be assured I have received your questions. You will receive an automated response so you know your question will be reviewed.
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