Friday Q&A

Friday Q&A Hello Smart Option Sellers! The Friday Q&A hasn't made many appearances lately. If you have any questions, please don't hesitate to send them in. Let's go over what we got. Q: Re: BIG Lee - making the best of a maybe a 'poor' decision!?! I'm not sure... On 8-31-18, I sold (10) Jan. 2019 32.50 BIG Puts at $0.35. On 12-10-18, I rolled that position (10 Contracts) to July 30.00 for a Net Credit of $0.264. On 5-20-19, you closed out on this trade and I hung on. OK - my Net Credit to Date $0.614. [+$614.00] On 7-11-19, I'm assigned 900 shares of BIG at $30. Leaving just (1) BIG 30 Put expiring July 19th. On 7-12-19, I sold (9) Oct. 18th 30 BIG Calls at $0.60. My question to you is: am I using the proper method or approach to the mechanics of trading Options here? Does this progression of events make proper trading sense? A: Since you were assigned on 9 out of the 10 put options before the actual expiration, selling covered calls was a smart move. We will do the same when/if we are ever assigned on any of our positions. Since BIG stock is currently trading near $26.50, you are not that much underwater overall, and those covered call options you sold will bring in extra cash, so that's more money in the bank for you. After expiration today, you will get assigned on your tenth contract and will be long another 100 shares on Monday at $30 per share. This will allow you to sell another covered call option to bring in even more cash to your account. As long as you are comfortable holding the long shares, you can continue to roll the covered calls if the stock price stays below $30 at October expiration. If BIG closes above $30, you will relinquish the shares. If that happens, you should walk away a very happy camper because not only will you break even on the stock price ($30), but you'll have all the income from selling the puts and selling the covered calls. If BIG continues to meander, or move lower than $30, you will need to make a decision to either hold the shares, continue to sell covered calls, or jettison the position completely. Your choice. Q: Lee, can you tell me how "selling covered calls" works. I don't understand the process. I'd like to do it if I can. Thank you. A: Funny how the two qu