The stock drops to 25s today, and the May 25 call is around 2 bucks, so even if the stock price goes down to 15, I expect the premium to stay above 1.00.
Your expectation is wrong. Look at the current price of the MAY35 calls, with strike about $10 above current price. They are worth about 0.25. If RMBS should happen to fall another $10 to 15 by May expiration, that's about how much the JUN25 calls will be worth when they become available. If it drops to 15 quickly, the MAY25 will drop to about .25 and gradually decline to zero at expiration. It will not be worth anywhere near 1.00.
You sold the MAY30 for 1.75 and bought the stock at 28, so your net cost is now 26.25. If you were to act tomorrow, you could reduce your cost by buying back the 30s for about .75 and selling the 25s for about 2.10, reducing your cost to about 24.90. That would be a defensive move. If you do that and RMBS takes off, you will have to give back much or your collected premium, or lose the stock at May expiration for no gain when fees are counted.
You can buy back the 30s while the price is down and hope for a bounce to sell calls again when the price rises. You might be right and do very well. You might be wrong and have almost no additional premium benefit at strikes at or above your net cost for many months to come.
If you do nothing but wait until May expiration, and RMBS is about $20 at that time, you might get about .65 for the JUN25 calls, reducing your cost to about 25.70. If RMBS runs above 25 before June expiration you get called out at a loss of 0.70. Will you be willing to accept that risk? If not you will have to wait for RMBS ro run up before you sell calls again.
If you believe in RMBS for the long term, patiently waiting for it to recover before you write calls again might well be rewarded, but you cannot assume that you are going to collect 1.50 or more every month while the stock is in decline unless you are willing to write lower strike calls and risk being locked into a net loss if it runs up on you. You cannot have it both ways. The only way you can collect the annual premium you are projecting on a declining stock is to risk being called out at a loss if the stock rallies. |
