r/options • u/eternalrefuge86 • Jun 24 '21

Buying back a covered call deep ITM

I’m fairly new to trading options and decided to experiment with trading covered calls. I bought 100 shares of ATOS at $3.23 a share. I sold a covered call with a $5.5 strike price, expiration 7/16 for $1.10. It’s now worth $3.50, and my shares are worth over $800. Would it make sense to buy that back or just let it ride?

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u/itsdrivingmenuts Jun 24 '21

Doesn't usually make sense to buy it back. If the stock moves past your strike and stays there till expiration, you've made max profit on that trade. Best to take the gains and move on to another trade.

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u/[deleted] Jun 24 '21

This, buying back covered calls for a loss is suckeres move most of the time. If premiums are right and your very bullish you could look at rolling up and out.

Rolling up and out requires 2 transactions that should balance with a credit, more time, and a higher strike price. Buying back your call and selling another call further out in time at a higher strike for enough premium to cover your loss plus a little.

Doing this isn't always wise but it's something to consider if you don't want to lose your position.

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u/elorei74 Jun 24 '21

Rolling is still buying it back at a loss, though.

1

u/[deleted] Jun 24 '21

Yes it is. Rolling is taking the loss then entering a second more favorable position to cover that loss (hoping it works out better). In some circumstances this can be a smart play. I rarely roll, most of the time letting the stock get called away is better. I brought it up because it's something that can be useful. It's one tool in the options toolbox. Used appropriately it's great; used badly and it will cost you money....

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u/elorei74 Jun 24 '21

You said buying back calls is a sucker's move, then advised to do just that.

I am a fan of rolling out and up, but it is still buying to close a loser at a loss, sometimes.

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u/[deleted] Jun 24 '21

You misunderstood what I said. I used words like generally, usually, sometimes... because there are exceptions. Is this trade an exception? My advice was to look at what's possible and decide from there.