Advanced Options Trading Lesson Number Four

Rolling Covered Call Options of Ryder System

How to Roll Covered Call Options – Rolling with Ryder

Do you know how I learn and remember stuff? Repetition is the key. After I have read something multiple times, or after I have sung a song several times, it sticks. Well, most of the time it is at least something that might be remembered. Therefore, I am writing about different covered call trades and cover call option rolls because each example may help the concepts stick in your memory. You should see a pattern.

Asking the Same Questions

The questions I ask before I enter a covered call trade or roll a covered call are usually the same. 1) Can I make a profit on this trade? 2) What might go wrong where I could experience a loss? 3) Is there an Ex-Dividend date before the expiration date of the contract I am considering? If so, what is the dividend amount per share? 4) When is the next earnings date? If I like a position and think earnings will be good-to-great, selling an option close to an earnings date may cause me to regret selling a covered call at a price far to low for the true value of the shares.

Rolling Ryder Covered Call

Ryder’s shares, like the shares of many companies, have been pounded down from a high of almost $85 per share. My $85/share covered call contract, as a result, will expire on March 18, which is this coming Friday. Unless something really strange happens, it makes sense to roll this covered call. The reason is simple: I think I can make more money.

Looking at the opportunities to make at least $300.

The best way to make more money is to extend the contract from March 18 to April 14 and lower the price. This screen shows that. If you look at the chart, you can see there is a greater probability that the shares could be called away, so options buyers are more willing to pay more for my contract.

Moving the contract out to April 14 has a higher probablity of being called away at $80: almost 40%

Gaining net proceeds of $1.90 per share for 200 shares is certainly a good risk/reward trade-off in my opinion. Therefore, I entered the trade.

Before I enter the trade, I can adjust my net credit expectations. $1.90 is my minimum. I can adjust this up.

If all goes well, I expect to net at least $378 for the trade. I actually received $506.57 after commissions and fees. That is because my April 14 contract for 200 shares sold for $2.68 per share.

Before I place the trade, I look at the dates and prices. Selling the March 18 position and buying April 14.

Because someone bought my covered call contract, I am obligated to sell them my shares if they are above $80 per share on April 14. It is worth noting that they could call them sooner. For example, if the shares bounced up before April 14, they might call the shares before the contract expiration date. But I am happy because I have already received $805 in additional income from my 200 shares since my first trade in February 2022.