Why I Choose To Roll My CALL Option Contract When Share Price Falls

The seller of a CALL Options contract is generally bearish that the share price of his stocks will not rise above the strike price on the expiration date so that he will collect the full premium without being obliged to sell any shares.

When the share price drops after I sell a CALL contract, what I like to do if the share price plunges or the premium drops significantly, I will close the CALL contract and open another new contract, selling a new CALL contract either at a lower strike price or a longer expiration date.

This is because as options sellers, the maximum returns are capped, by the total premium received from every contract. In a CALL contract, it does not matter if the share price is lower by $1 or $100 upon expiration, the premium will always be the same. While the premium is capped, it is proportional to share price, i.e. when share price goes down, the premium goes down as well.

Thus, the way to get the most out of CALL contracts is to close them whenever the premium drops significantly (due to a drop in share price) and open up a new contract (sell another CALL contract with a new strike price or expiration date) to earn more premium. This method helps to lock in the profit and prevent the risk of the share price’s sudden spike up, which can cause premiums to go up again.

In essence, it is about re-adjusting the strike price to one that is lower (to align with stock trend) and thus helps collect more premium for the options contract seller. An example of how I roll CALL option contracts to maximise gains can be found in this article:
How To Generate Returns When The Market Is Going Down

I hope this sharing is useful and help you get the most out of your trading positions.

***
Keen to learn about options trading but do not wish to pay for expensive courses, this newbie guide will help gain the knowledge and fundamentals to understand options better. And it’s totally free!
The Newbie’s Guide To Options Trading

The LEAPS Strategy has helped me make more than USD120,000 in 2021. Here’s all you need to know about this strategy that can help you increase your wealth exponentially:
The Ultimate LEAPS Options Thread

Looking for ideas on what stocks to invest in or which stocks to trade? You can take reference from what I have been buying or selling. I try to update them as soon as I can in this section, as well as share my thoughts behind executing these trades:
MY TRADES

Excited to start your trading journey or perhaps try out with a paper trading account to build your confidence in trading? Check out this step-by-step to help you get started:
How To Buy Options on Interactive Brokers (Step-By-Step)

I watched tons of videos on YouTube since 2020 and if you are wondering if there are any useful channels that you can subscribe to for learning market trends, TA, FA, check out this compilation here:
My Secret Weapons For Options Trading: I Watch These YouTube Financial Channels Every Day

I concluded my first year of options trading with more than USD160k of gain, see how I do it and the capital I use for every month to give you a sensing of the percentage yield I get out of my gains:
1st Year Options Trading Recap: The Journey Towards SGD$217,509 Profits In 2021

This blog is as authentic and as transparent as I can share, I do not just show the wins and hide the loss. I have made some very bad decisions in the first 8 years of investing and paid a huge price for them. Here is the loss I have accumulated during these years. I hope you learn some lessons from my mistakes.
I Cut $135,715 Worth Of Losses In The Last 1.5 Months

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s