What the heck am I doing?

My last post was about rolling the option on one of my deep in the money calls up in strike price and out in exercise date. Well that is not working so well!

Over the last 2 days EEE has fallen from $10.48 a share to a current $8.61. I had a Feb $7.50 call which I sold and bought a Mar $10 call. Right now I would be much happier if I had held onto the Feb deep in the money call.

The lesson learned here is to not get greedy. I had a good profitable position with very little risk, and I traded it for a more profitable (possibly!) with much greater risk. Each time I have messed with a position before expiration of the option, it has cost me.

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2 Responses to “What the heck am I doing?”

  1. Learning Covered Calls Option Expiration Day « Says:

    […] would have been much better if I had not tried to roll up then down my options in EEE. That brainstorm cost me about 1/2 of my expected profit in the […]

  2. Charles Says:

    I ma be wrong, but I think its easier to manage a covered call that’s deep in the money when the absolute price of the stocks is a little higher (ie $100 stocks rather than $10 stocks). With a $100 stock, you can be many strike prices in the money before you are 25% in the money — with a $10 call you’re one strike in the money if all they offer is a $2.50 increment.

    Anyway, staying deep in the money is a good thing to do because you get a good deal of downside protection and can there can still be premium to be had. Also, as you get close to expiration, you can do a diagonal roll up once the underlying’s price has moved and you want to stay the same percentage ITM. If you have a net debit of $2 to do the roll, you will get back 5 (150% return) assuming the stock doesn’t tank (which is why you want to stay fairly deep ITM so you have time to close out before you get into loss territory).


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