Rescue Deep In The Money Covered Calls

When investors sell covered calls, many times they are trying to augment the dividend being earned or just trying to bring in some profit off their shares.

We have all heard the story of how we should be “renting out our shares”. It makes sense, but at the same time, often a stock will move higher and the investor finds himself holding covered calls that are in the money. The problem is often the investor did not want to give up his shares.

An investor wrote in with a similar problem. He holds 2700 shares of Dycom Industries which trades under the symbol DY. His cost basis is $72.18 and he sold the September $75 calls. The problem is the stock has shot higher and is trading at $85.00 today (May 26 2016) a full $10.00 above his call strike. He doesn’t want to give up his shares just yet. He would love to enjoy the rally higher in the stock.

Let’s review his question and then look at some suggestions:

Investor Questions

Teddi,

i need rescue strategy.. for DITM calls.

i have dy 2700 shares in 72.18

i had 17 sept 75 calls…

dy gapped massively on earnings… its 82.8

so my calls are underwater… need help!!

Desi

Suggestions and Tips:

There are a number of ways to rescue this deep in the money covered calls trade. This article reviews two methods that are quick and easy to implement.

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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.