Rolling Covered Call Options to Make More 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.
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.
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.
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.
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.
Hi Wayne, I saw you mentioned to another Fido Forum Member about your blog, and I landed here and Enjoyed reading these! thanks for sharing and educating. you mentioned in your PM that you download your fidelity data to excel and have ROI formulas and other formulas built in. Could you please share the template ( you can delete your personal data, and keep one or 2 rows with formulas and if there any other tips or tricks to use your excel, please add them and send them to me. Thanks in advance, Jay R
Do you have an email address you can send me? My email address is firstname.lastname@example.org. Also, rather than typing tips and tricks for my spreadsheet, I can send you a sample and then we could do a brief call so that I could share my screen and step you through the fields and how I use them. Do you use Zoom? If so, that is the best way to do this without spending a lot of time typing my ideas.