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Market Measures

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Rolling | Covered Calls

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

We favor selling calls against long stock, which is known as a Covered Call. The strategy reduces our cost basis and by doing so mechanically we can roll the position forward to continuously lower the breakeven. What is the best way to roll a covered call?

A study was conducted using SPY (S&P 500 ETF) from 2005 to present. We sold Covered Calls with a 30 delta and then compared waiting until expiration and then rolling the short call to the next month. The second strategy was to wait until the extrinsic value of the option dropped below $0.25 and then rolled the call to the next expiration (or held to the current expiration if that wasn't possible).

Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the valuable takeaways, the detailed study results and other insights on rolling Covered Calls and how to improve your cost basis.

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