Rolling Covered Call Options to Make More Dough

Options Trading can have you rolling in dough.

Some people roll dough and others are rolling in dough. Some crooks tell bank tellers to, “hand over the dough.” When dough is used this way, we are talking about money. Of course, my favorite dough is pie dough to make the crust for a rhubarb pie. But today we will be discussing the recipe for another type of options trade.

In past posts about options, I have focused on the selling of covered calls. I have also talked about buying cash covered puts. Both of these trades provide additional income if you own at least 100 shares of a stock or ETF that is traded on the options exchange. Suppose you already sold a covered call, and you are interested in making more dough. You already had income from selling the covered call. Perhaps a week, or more, or less has transpired and your option contract is still open.

You can roll the option. It really isn’t hard to do. This afternoon I made $932 in a little over one hour. It took three trades to earn that amount. I did roll trades for Microsoft (MSFT), Valero Energy Corporation (VLO), and Darden Restaurants (DRI). Each trade was slightly different.

Three Roll Option Flavors

For this post I will focus on one of the three types of rolls that I did. For MSFT I wanted to have the contract expire sooner at a lower price. I was pleased to see that my 100 shares were not called away, because the new contract expiration date was set for today. The shares closed below the contract price. I get to keep the profit.

In my next post, I hope to talk about the VLO trade. For VLO I wanted to increase the contract price and extend the expiration date of the contract. As you can see, this is the reverse of the MSFT options contract. This was also different because I was trading five options contracts that cover 500 shares.

For the DRI trade, a future post will describe how I extended the contract by one month and reduced the price I wanted for my 100 shares.

The Microsoft Options Roll Trade

One of my MSFT covered calls was set to expire next Friday, March 18. The contract price was $315, and I had earned $196.31 selling that contract. MSFT has fallen with the rest of the technology sector, so the shares were trading below $285 this afternoon. I decided to do a roll transaction to sell my shares for $285 with a contract expiration of today. I earned just over $50 for this new contract.

The next two screen shots show the way the roll feature works on Fidelity’s Active Trader Pro. The roll is buying an option to close the original contract (BCC), and then selling a covered call (SCO) to replace that contract.

To roll a covered call you pick a new contract price and an expiration date.

One of the trades is commission free. The BCC only has a three-cent charge. The SCO, however, has a normal commission. The commission for most single contracts is $0.69, so it is not a big deal.

The additional profit will be about $50 after the commission.

After submitting my roll order, both the BCC and the SCO options orders executed. As you can see, the new contract expired today, March 11, 2022.

The trade completed. The new covered call contract expires today.

It is something of a risk to do a trade like this. However, the worst thing that could happen is that the price could go up above $285 per share. That would mean I would have to sell 100 of my MSFT shares. However, that would put $28,500 into my account for other trades. I get to keep the $50 either way and I already made money on the original trade.

Because the contract expired, I can enter a new covered call next Monday.

Full Disclosure

Cindie and I own 250 shares of MSFT. Year-to-date I have earned an additional $2,862.48 in options income on Microsoft alone. That is in just a little over two months.