The Math of Unwinding Covered Call Writing Trades Early

 

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Unwind calculations if both legs of the position are closed on 10/6/2020

The time-value cost-to-close (CTC) is 0.58%. There are 10 days remaining to contract expiration. We ask ourselves: Can we generate at least 1% more than the time-value CTC or 1.58% or more with a different security by 10/16/2020? If yes, we execute the mid-contract unwind exit strategy. If no or unsure, we take no action and continue to monitor the trade with possible rolling opportunities as expiration approaches.

Discussion

Exit strategy opportunities must be executed when beneficial to our overall portfolio success. To make these determinations, the BCI Calculators will assist as the formulas are built in to allow us to understand the mathematics of our trades. In the case of Alex’s TAN trade, a successful trade was executed with the possibility of establishing a second income stream in the same contract month with the same cash investment.