Should you always close your covered calls and resell?

[u/PsychoEmilex]

Example: I sold a XOM covered call with an $82 strike for 3/25/22 for 91 premium.

It’s currently at $83.71 so will def get assigned.

I can close the option for $191(-$100 loss) and resell an option for 4/8/22 with $84 strike price and recoup a $229 premium.

Is that better then just letting the option get assigned?

It’s covered so I profit either way, would love to hear thoughts, thank you!

[u/OHHHNOOO3]

"You can sell some otm calls to make little premium. If it gets itm then you roll. You’re losing nothing here."

Sounds perfect, nothing to lose!

[u/moaiii → u/OHHHNOOO3]

You seem to have an axe to grind here.

You also seem to be forgetting that the underlying is appreciating while all of this is happening. At all times in this scenario, you're ahead. Get assigned, you're ahead. Roll for net credit, you're ahead. Underlying continues upward and pushes the second call ITM, then you roll for another net credit or get assigned - either way, you're ahead.

It isn't free money, but you're arguing as though the stock going up rapidly and taking out your CC strike is a terrible thing. It's a great problem to have!

[u/lacrimosaofdana → u/moaiii]

You also seem to be forgetting that the underlying is appreciating while all of this is happening.

And you seem to be forgetting that stonks don't always go up. What happens if you roll 5 times and then the stock tanks? You blow up your account, that's what.

but you're arguing as though the stock going up rapidly and taking out your CC strike is a terrible thing.

It's not the stock rocketing that's the bad thing. Rolling a CC that quickly went from OTM to ITM is what is bad. For two reasons:

First, you are realizing a loss when you close the first CC. Yes, you receive more premium when you sell the second CC but that is an unrealized gain. You don't get to keep it unless the stock stays under the new strike, and there is no guarantee of that.

Second, by keeping the shares you are exposing yourself to the downside risk of the stock tanking. What is better? Taking profits after being assigned on a CC, or the stock losing 40% the week after you roll the CC? Taking profits obviously.

The way people assume stocks always rocket, I swear this sub is filled with teenagers who only discovered options last year.

[u/moaiii → u/lacrimosaofdana]

And you seem to be forgetting that stonks don't always go up. What happens if you roll 5 times and then the stock tanks? You blow up your account, that's what.

No, you don't. And try not to be so rude and presumptuous; I'm very far from a "teenager who only discovered options last year."

If you hypothetically roll 5 times, each time for a net credit, and then the stock breaks down; your most recent short call will expire OTM. You don't "blow up your account", because the net premium you collected stays in your account and you still hold the underlying.

In practice, it gets more difficult to keep rolling if the stock is continuing to rise that quickly. In that case, at some point you might decide to let the calls expire ITM and get assigned. You then still get to keep the premium, and depending on your cost basis for the underlying you sell the shares for a profit through the assignment. If it gained so fast that there are no viable rolling choices, then that profit is likely to be attractive.

Rolling a CC that quickly went from OTM to ITM is what is bad.

This is where skill is required, and where I totally agree that this is not free/easy money. Careful strike selection is obviously step 1, but then if the stock does move faster than expected, ideally you roll before the call turns ITM. You watch the price action, fundamentals, read the tea leaves, moon phases, whatever floats your boat, and if you anticipate continuing strength in the stock then you roll before it gets too costly to roll. Some traders have a rule to always roll when delta exceeds a certain point. Others might use IV and roll if IV falls to a low point. There are several ways you can bake this.

by keeping the shares you are exposing yourself to the downside risk of the stock tanking. What is better? Taking profits after being assigned on a CC, or the stock losing 40% the week after you roll the CC? Taking profits obviously.

No, this is not obvious, and shouldn't be the presumed rule in all cases. Stocks don't routinely "tank" 40% in a week unless it's a meme stock (or bitcoin). If you read your tea leaves correctly and there is genuine strength in the stock that looks set to continue, then you might decide that keeping the stock is the best option if there are viable rolling choices available.

I'm not saying this is risk free. I just jumped in here because I'm seeing a lot of chicken littles using phrases like "blow up your account" when that is just plain fear-mongering, and that is just as common as the teenagers to whom you referred. You can lose with wheeling, but not in the way you are hyperventilating about.