Hello Robert,
You have several choices to make. Since, you did not list the stock symbol we can't look at the chart patterns, earnings, fundamentals, and industry group to factor in and determine the course of action. It's a matter of calculating the risk/reward posibilities along with your investment objectives.
CHOICE #1
So, you either cover before your CCs' breakeven point (strike price + CC premie = CC breakeven). After that B.E. point, the stock price will be running away and appreciating while you are frozen at the profit of the CC strike price.
The outcome of above is that you give back the CC income and hopefully the commissions will not put you in a loss. Not to mention, it does generate a short term tax loss/gain depending on your timing.
You could cover this CC and roll up to another CC strike price to recover some or all of the loss on the last trade depending on the length of time (months) out. It is important that when you start CCing you have a game plan on what you will do if the stock moves up, down, or sideways. That is what our WINs approach provides as far as suggested "rules" that make sense and keep you out of the $$$ red.
CHOICE #2
Sit tight and let them call you out! Additionally, you could buy long calls sideshows to capture the bulk of that stock price gain above your CCs strike price. This happens to be my preferred personal choice that I tend to lean towards. But, that's me! I've had situations where I picked up sideshows and expected to be called out. Down the road the stock started to peter out and decline. Well, I cashed out the profit on the long calls and on expiration day the stock closed below the CC strike. I kept the entire CC premies which I applied towards buying the long calls, the stock, and made a profit on the long calls.
I view it as using the CCer's premies to make a profit on the long calls or for buying my downside (cheap PUTs) insurance.
If indeed I'm going to be called out of my CCs, I could always decide to exercise the purchased long calls to once again start with a lower entry price (NUT) into the same stock and not miss a beat in the stock price upward trend. Note! This whole process could happen VERY fast depending on the stock.
That's about it Robert. Thanks for your question. Perhaps the others have some ideas? |
