How to Fix a Covered Call Option 💰 How do you Adjust a Covered Call

[@StockandOptionMyLifeOfLearning]

►► AVAILABLE NOW! Limited to the FIRST 100 people, get my brand new online Option Trading course (Intermediate option trading) for $497. Regular price is $997. Here is the link to check it out: mylifeoflearning-randy.mykajabi.com/offers/EgeavtWJ Join my Patreon to get access to my all my Stock & Option Trades, Open Orders and Weekly Top 5 Stocks: www.patreon.com/mylifeoflearning Subscribe to this Channel: kzbin.info/door/eUPN22CHOgoDTZ4QfOjxHw New Beginnings: The Option Trading Story amzn.to/2OgXx58 Limited time: Get 2 Free Stocks on Webull when you deposit $100 (Valued up to $1,850): www.webull.com/activity?inviteCode=MfCJx4xeKzuw&source=invite_gw&inviteSource=wb_oversea Facebook: facebook.com/jamiston.queens.5 Website: mylifeoflearning.com/index.html

[@StockandOptionMyLifeOfLearning]

I believe I forgot to mention one more reason why I felt comfortable doing this trade. CPB does not announce earnings until 09/01/2021. If it had earnings before our 12 call options expiration, I most likely would not have done this trade. I do expect there to be some buying pressure over the next nine days or so as a result of dividend capture so we'll see how this trade plays out.

[@brianquigley6862]

I love the idea that you bought protection before you needed it. Very prudent. That's just the cost of doing biz. You can't buy homeowner's insurance when the house is burning down, lol. I HATE selling Naked PUTs and won't ever trade them but this video does offer a possible solution to someone selling calls on a stock that gapped down. Thank you! I trade many many diagonals but ALWAYS place the trade with a hedge. Usually a PUT vertical so if I am correct I can always buy back the short leg of the Put vertical for profit thus reducing the cost of the original Put spread. I start delta long so if I am correct I make money all the while being protected. Reducing the cost of the Put Vertical is gravy imo and I am willing to lose ALL of the long Put premium. When we drive a car we burn gasoline. That's the price we pay for locomotion. If you want to drive, you need gas and ALL gas is burned off when you drive. Put protection is similar. Some premium burn off is necessary. You can't go far with out gas and your account will be blown up sooner or later when the Black Swan shows up. I am NOT giving donation to the market makers for being greedy. They count on it and that is why they are in biz. You gotta hedge before and NOT be greedy. Options were designed for protection NOT greed and gambling which they have evolved into.

[@yan2987]

Amazing video, thank you so much

[@StockandOptionMyLifeOfLearning]

You're awesome! Thank you for your support! I really appreciate it.

[@QbanRockets]

I love your channel. Thanks for your videos and advise.

[@StockandOptionMyLifeOfLearning]

Thank you so much for that Abdiel and for your support! It really means a lot! 😊

[@cowabunka]

again, quality content. Just love your insight into how to dig out of a deep ITM position, everything just makes perfect sense. In fact, we can even roll up and out above the extra insurance level should the situation warrants it, beautiful

[@StockandOptionMyLifeOfLearning]

Thank you so much for that and for your support! 😊

[@claytonkr05]

Great stuff Randy! Always a highlight of my Saturday mornings!

[@StockandOptionMyLifeOfLearning]

Thank you so much for your support Kyle! 😊

[@shc1737]

converting into a call ratio back spread sort of trade.

[@StockandOptionMyLifeOfLearning]

Thank you for your question and support! It is a type of a ratio spread, with a hint of a butterfly position. There may be a technical name for it that I'm not thinking of at this moment.

[@ngchongsin2009]

That is good video. I had also learned the hard way selling call option will only works on picking the right stocks

[@StockandOptionMyLifeOfLearning]

Hey Martin thank you for that and for sharing! I agree with you completely. It is very important to do your best to pick high-quality companies.

[@edbrandt8972]

Thanks for sharing the transaction screen from your brokerage account. The concept is now crystal clear in my head.

[@StockandOptionMyLifeOfLearning]

Thank you for your support Ed!

[@gramos1975]

Is it possible in your example to sell call options but weekly no monthly? Isn't better to do that to collect more premium?

[@StockandOptionMyLifeOfLearning]

As long as the underlying stock has weekly options then yes some traders prefer weeklies. I prefer monthly options. If you haven’t seen it already and would like to check it out, here’s a video I made on that subject: kzbin.info/www/bejne/Z3PPZ2yPf5Vnma8

[@nicholaslws5481]

Hi Randy, could you cover how to trade options around earnings? Much appreciated as always!

[@StockandOptionMyLifeOfLearning]

Thank you for that suggestion Nicholas and for your support! I think that's a great idea for a topic. 👏 I will get it worked in to a future video.

[@benspurgeon6273]

So you use a call spread to help bail out this position

[@StockandOptionMyLifeOfLearning]

Yes we used a bearish call credit spread to add more cash flow to the position.

[@clarksmart2440]

How do you sell more cals than the number of shares you have?

[@StockandOptionMyLifeOfLearning]

You have to be approved to sell naked call options. As long as you're approved for that, and you have the capital and or margin available, then you can sell a naked all option. You just want to be careful because theoretically, the stock can go to infinity, so that call option does have theoretically unlimited loss potential.

[@scatillac6840]

So are 6 of the CC contracts considered naked then? If so what were your margin requirements? I just started doing CCs and CSPs a few months ago and am trying to really learn those two strategies. But I just don’t quite understand if you sell a naked call or put how it works w margin requirements. ThNks!

[@StockandOptionMyLifeOfLearning]

Could you please give me the time stamp you’re referring to? I want to make sure I give you an accurate answer.

[@utubedaveg]

My question would be what was the buy back price for your put and what could you have gotten for rolling it out a month or even 45 days? Trading thru earnings is risky. Why trade this at 49.00? No support that I can see. Also the stock was coming off a lower high. Great long term support at current price. Could be a good entry level now.

[@StockandOptionMyLifeOfLearning]

Thank you for your questions and support! I agree that it is a great entry point now. However there were various technical reasons why we felt comfortable entering the trade when we did as well. When we realized that the odds were increasing that the stock would be assigned to us, we assessed all our various potential trades. We decided that we preferred allowing it to be put into our account. As you mentioned, we could have rolled the put option, but we preferred to go ahead and let the put be assigned to us and turn it into a covered call as well as add a credit bearish call spread. A lot of traders do not feel comfortable trading through earnings. I have never minded trading through earnings on solid, mature, stable, and consistently profitable companies. It's just my personal preference. When we initially made this trade, CPB was finding nice support on the daily and weekly chart right around the 50 and 200 MA. However, it broke support. We know that some trades will not turn out the way we thought they would. That's another reason why I love trading options so much, because it allows us to adjust and maneuver positions, even if they don't go the way that we expect them to go.

[@MrThestach1]

What would you do if say the stock price breached your short leg $49 and just rested between the $49 and $55 strikes at or nearing expiration date?

[@StockandOptionMyLifeOfLearning]

Hey Joe thank you for your question and support! If it breached our short leg at $49, I would first look to see if it had strong momentum. If the upward momentum was fading, I would probably wait to see if it was going to retreat. It will have to make a pretty good push in order to move that high, so the question is, will it have enough steam to keep blowing past it. However if it was showing increasing and strong momentum to the upside, then I would look to roll the bearish call credit spread up and out. I'm not sure what I would do with the 6 contracts that are a part of the covered call portion. That would depend on my overall feelings for future movement of the stock. I wouldn't mind if the stock was called away from me so in all likelihood, I'd probably just let that ride to see what happens with it. But my main focus would be on protecting ourselves by rolling the credit spread up and out before it got away from us.

[@MrThestach1]

@@StockandOptionMyLifeOfLearning so if I understand correctly you're 1) immediately selling a CC on your assigned shares from your CSP and 2) simultaneously selling a CCS layered on top of your CC to capture extra prem on a stock that has recently faded and doesn't look to be making gains for the foreseeable future...is that correct?

[@StockandOptionMyLifeOfLearning]

I apologize Joe, what exactly do you mean by CCS? Drawing a blank.... 🤔

[@MrThestach1]

@@StockandOptionMyLifeOfLearning call credit spread

[@StockandOptionMyLifeOfLearning]

That’s what I was thinking but I didn’t want to agree to something that I wasn’t 100% sure on. Yes that’s exactly right.

[@tammy3458]

Thanks so much for another “PROFITABLE” video;)! I have learned a lot from u & actually placed my 1st covered call about 2 weeks ago! I felt so confident that I placed another one & then another one! As of last Friday’s close, ALL 3 of my positions are where I want them to be & where my research was showing their price to be! I do expect to be called on 2 positions, but it’s still ok with me! I made a nice premium plus some upside on the stock! Yes, I know I’m likely losing a little bit on more upside, but honestly, these trades are winners for me! I’m so excited to learn more! I have one question about ur patreon members:If I join the highest level, does that mean I get access to ur trade recommendations? I WOULD ❤️ TO HAVE ACCESS TO UR LISTS! Of course I want to keep learning on all the analyses I can use to figure out where a stock is headed, but it’s nice to have a more experienced person’s research.

[@StockandOptionMyLifeOfLearning]

Thank you so much for sharing and for your support! 👏 I really appreciate it! 😊 On my Patreon (kzbin.info/www/bejne/jJbCgWlofM2LZ68), at the highest tier, you get an alert of the exact trades that I do as soon as I know the trade went through. You also get access to everything that all the tiers below that get as well including my weekend stock list of stocks I’ll be watching in the coming week to potentially do a trade in them. Let me know if you have any other questions.

[@DepthWish]

You should talk about the risk of loss on this new spread

[@StockandOptionMyLifeOfLearning]

Thank you for that suggestion and your support! I'll keep that in mind for a future video. 👍

[@TheLordtaiko]

So you just turned it into covered, credit spread?

[@StockandOptionMyLifeOfLearning]

Thank you for your question and support! We turned it into a covered call and added a bearish call credit spread.

[@rrhhggtt]

Hi Randy, buying the additional OTM calls makes it into a Covered Call + Credit Call Spread. Will this increase the losses further when the stock moves against the direction?

[@StockandOptionMyLifeOfLearning]

Hey Johnny thank you for your question and support! If the stock moves past our short strike price of $49, it will not hurt our covered call position because that is the strike price that we bought the stock at. However we would begin to show losses on the credit call spread if CPB moves ITM on that short $49 call option.

[@rrhhggtt]

Thanks Randy. How about using the premium from the covered call to buy a Debit Call spread? That way, we stand to gain too when the price moves past our short strike - our shares get called away but we also gain from the spread.

[@StockandOptionMyLifeOfLearning]

If you were really bullish on CPB or any stock for that matter, you could definitely use the cash from selling your put option or covered call option to buy some other call options out right. If you do that though, personally I wouldn't buy short term options. I would look to buy LEAP options. If you buy shorter term options, the time value just deteriorates so fast on those short of term options so IMO it'd be better to buy longer rather than shorter term call options.

[@benspurgeon6273]

If the trade started moving back in a good direction for the covered call and was negatively impacted the credit spread you could always close the spread out and mitigate that loss. I have never thought about this strategy I have rolled options over if it wasn’t going my way but this might be a better option.

[@StockandOptionMyLifeOfLearning]

That's always a great option and works especially good if time decay has eaten away at the credit spread so you can buy it back for next to nothing or even at a break even if it looks really bullish.

[@theeverydailyshow]

Hey Randy, just looking back at some of the older videos... I know in occasion you'll give updates on how your strategy turned out. Ever think of making this a regular thing (monthly, quarterly?). Kind of like what you do with monthly income. Would be interesting to hear how this one evolved a year later.

[@StockandOptionMyLifeOfLearning]

Hey Chris absolutely! I think it's a great idea! In fact, I just finished editing a video last night that will come out next Saturday, I think was based on a suggestion you made, where I recapped all of our trades over a year and a half time frame in Realty Income (O). It's always cool/fun to me and it sounds like to you also to see history and see how your trades turned out over a long period of time. Thank you for the suggestion! If it's a specific position you're referring to in this video, if you'll send me the timestamp, I'll try and pull up my notes and let you know how it turned out or possibly make a video about it in the future.

[@theeverydailyshow]

@@StockandOptionMyLifeOfLearning Awesome memory! Thanks for taking the time to look back and assemble the info for a video. Looking forward to it! I will definitely give you some details on the stock I was referring to from this video a year ago.

[@theeverydailyshow]

The stock is CPB, which I think is the only stock covered in this video. Starts around 1:20.

[@StockandOptionMyLifeOfLearning]

It ended up getting called away from us (after rolling the CC for about a year) on 5/6/22 at $43. Our current P&L in this position is up $2,236 since we started trading in it in this main option trading account on 12/24/20.

[@seanlow2033]

Great content, as usual, Randy! Question : Isn't that 6 call contracts you SOLD, a naked call? Let's say CPB share prices closed at $60 on expiry and you're still holding - your broker will sell debit/deduct $3000 from your account, no? And your long call options will expire worthless? Apologies for the noob question, I'm still learning about options - these spread strategies always confuses me.

[@StockandOptionMyLifeOfLearning]

Thank you for your question and support Sean! The extra 6 call options we sold are in a spread because we bought 6 farther OTM call options to cover them. The first 6 are covered by the stock that we own. If CPB were at $60 per share on expiration day, our 600 shares of CPB would be called away from us for 6 of those call option contracts. We would then have a $3,600 loss minus option premium already received on the 6 contract credit bearish call spread we are in. We have received a lot of cash already from this position and as long CPB didn't jump up in a big way overnight, we should most likely be able to adjust the credit spread portion of this position but anything is possible. You never know. We'll see how it goes and trade accordingly.

[@edgarquismorio8464]

Use a pointer tool.

[@StockandOptionMyLifeOfLearning]

Thanks for the suggestion.

[@giovannisilano]

Talking about Covered calls,why not Covered Strangles and Covered Straddles?

[@StockandOptionMyLifeOfLearning]

Thank you for the suggestion! Sure you can do those as well. They are more complicated to adjust, but as long as you understand how they work, that’d give you another strategy to fix a position.

[@xingu6554]

Sorry, I still don’t get it why you buy 55 strikes? If the price fall between 49 and 55 dollars, you still loose, right?

[@StockandOptionMyLifeOfLearning]

Please give me the time stamp you’re referring to. Thank you.

[@xingu6554]

4:43

[@StockandOptionMyLifeOfLearning]

We had been assigned 6 contracts. So we owned 600 shares. But we were trying to increase the amount of cash we collected besides just doing a covered call. So we sold an extra 6 $49 naked calls. In all we sold 12 call contracts. That meant that 6 those contracts were naked. To protect ourselves in case CPB went way up past that $49 strike price, we bought 6 of the $55 call options to cap our potential loss.

[@JalonTan]

@@StockandOptionMyLifeOfLearning I have the same question. How would a $55 call option cap our potential loss? Would you mind elaborating on that please? I'm having trouble playing that out and make sense of it. Thank you!

[@StockandOptionMyLifeOfLearning]

Our only exposure on the bearish call credit spread side would be the difference between the $49 call option we sold and the $55 protective call option we bought. So our max loss would be the $6 per share distance between those two call options and the option premium we received.

[@ba177ba18]

help. I sold a covered call on Tesla stock at 150 and right after that, Tesla stock shoot up into 250s. my average is in the high 200s. how do I repair my covered call? I have been rolling the covered call for very little premium. please help

[@StockandOptionMyLifeOfLearning]

These videos should help: kzbin.info/www/bejne/l3yQn4OOj5abd6M and this playlist: kzbin.info/aero/PL3j38I2YtGw2mMZNftBUDs1Ln984R0wV9

[@signalbord]

i have just noticed some videos are from 2001 and some from 2021, do you not age at all?

[@StockandOptionMyLifeOfLearning]

LOL I'm not sure where the 2001 videos came from. Thank you for your support!

[@signalbord]

​@@StockandOptionMyLifeOfLearning haha, sorry, looking again, i dont think there are any :D well ok, thats one mistery solved, great content though, thank you for the videos!

[@Olivervleh]

The call spread add's another $7200 of risk though, for what - $210 premium? Only about 2,9% in like 2 month. If it moves up slowly, you could close it for maybe half, but still ...even with the technical indicators in your favour, if it shoots back up, you'd be in the money in notime. Can't really repair it any further at that point, can't really roll it if you're already 2 month out. If you'd invest the 7.2 somewhere else, different trade, e.g. a simple cash secured puts, you'd make the same in like 2-3 weeks. Doesn't seem like a healthy risk reward to me.

[@StockandOptionMyLifeOfLearning]

Thank you for sharing your thoughts on the subject. That's one reason why I love option trading so much. It can be tailored to each trader. One strategy can be perfect for one trader while a completely different one might be perfect for another trader. You have to find what best fits you, your education level, risk tolerance, etc.

[@michellewoo5662]

That's insurance for the naked calls

[@StockandOptionMyLifeOfLearning]

Hey Michelle yes that's correct. We bought those farther OTM call options as insurance for the 6 extra call options we sold.

[@snc4278]

Are the majority of your covered calls on consumer staples? It seems like a good strategy. Most pay dividends, and hold their value. Do you change your strategy when the VIX is low?

[@StockandOptionMyLifeOfLearning]

Thank you for your question and support! Some of them are in consumer staples but we really try hard have a well diversified portfolio. Right now, we are trading a higher percentage of consumer staples than normal but we have a well diversified portfolio. We generally have around 30 or so positions on in our option trading account at any one point in time.

[@ShihabPersonalFinance]

I dont think that’s safe, it’s a completely new trade with new risk, I think it might be better to just sell the calls at 49 or even at a lower strike since you already received so many credits, and if the new strike gets breached you can roll it up quickly for one last trade, or if you like the underlying so much you can buy more shares to lower your cost basis and sell calls at a lower strike.

[@StockandOptionMyLifeOfLearning]

Thank you for your thoughts on the position and trade. That's one of the nice thing about options, you can always create a position that makes you feel most comfortable and matches your trading style and personality.

[@cfaundezc]

I was wondering the same, but as newbie I would love if someone can elaborate further: 1) Is a good idea to sell a call under the assignment price (49), for example at 47 or so to collect the premium and if price reach this level roll it up? Also a second question 2) How would you play the trade if the underlying price keep going down? Thank you @Shihab and @MyLifeOfLearning for your insights!

[@StockandOptionMyLifeOfLearning]

Thank you for your question and support! The only problem with selling a call option below the assignment price is that you could potentially be called away at a lower price then you paid for the stock. If you're OK with the potential risk, then there's nothing wrong with it. The reason why we chose the strike price we did was, #1 that's where we have been assigned the stock and for the credit spread it was above strong resistance. If you're in a position where you're trying to increase your cash flow but really don't want the stock called away from you, then you really want to pay attention to support and resistance and sell the near term call options at or better yet, above resistance. If the underlying stock kept going down, as long as the fundamentals didn't change in the company, I would stay with the trade and continue rolling the short call option strike price down, always trying to keep it at a point above or at resistance. That way if the stock rebounded, I should be able to roll the short call option up and out.

[@thomasd5488]

@ Shihab's Blog "or even at a lower strike since you already received so many credits, and if the new strike gets breached you can roll it up quickly for one last trade" Placing a strike below your purchase price is doable, but with more risk and more active management. You need to really stay on top of things and be ready to roll up to a higher strike with a farther out expiration to earn a net credit so you don't get excised at the lower strike. This will probably cause you to have to go much farther out in time on the expiration. The risk is, the stock will continue to move up to the second strike and be in the money again, before this longer expiration. I had to do this with AAPL because I bought some LEAPS calls on May 3, 2021 that expires in Jan 2023 and sold weekly covered calls against the LEAPS (instead of having 300 shares, I bought 3 ITM LEAPS calls to use as collateral). I started out with a strike of $133. Eventually after several weeks selling calls, AAPL started to rise significantly and I had to start rolling my covered calls up and out to earn net credits, and to avoid the covered calls expiring ITM. Now, after 5 months of selling covered calls that needed to be rolled farther up and out, My covered call strikes are now a $155 with a June 17, 2022 expiration date. This can become a problem because it is more than likely that I will have to roll up and farther out again before the June 2022 expiration date. The accumulated premium collected for these 3 $155 covered calls is $12.87, but not all of that is profit because at least half of it is buying back the previous strikes that were ITM when I rolled them up and out. I will continue to roll the covered calls up and out when needed, to keep them OTM, until there are no more expiration dates to roll to, for a net credit. In the mean time, my LEAPS calls are increasing in value at a faster rate than the covered calls, as AAPL stock increases. Looking forward to my pot of gold at the end of the rainbow, when it is time the close the covered calls and the LEAPS for a huge net profit.

[@StockandOptionMyLifeOfLearning]

Thank you for sharing that Thomas! I love real life examples like what you shared. I've made several videos on LEAPS & PMCCs if you guys haven't seen them and would like to check them out, here's the link: kzbin.info/aero/PL3j38I2YtGw3d2osU5O6XRHJ8-Wul2ZW7

[@Mark-wz1yt]

All campbels soup would have to do to blow past that strike price is announce they plan to build 1 EV by 2045

[@StockandOptionMyLifeOfLearning]

That’s about right 😁 The soup mobile!