Top Dogs: Managing a Small Account

Small Accounts | Managing The Portfolio (2 of 6)

Top Dogs: Managing a Small Account

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

In part 2 of the 6-part series on managing a smaller account, we follow up last week's discussion about establishing a core position.

Our first segment explained how we can use options to reduce our delta exposure, and reduce cost basis when establishing a core position. The next step is learning about how to potentially adjust a position after the market moves.

When using a covered call strategy as an example, and show how the extrinsic value of the short call provides downside protection. Eventually, the underlyings will move from the price at which we entered, and when this happens, we may need to roll the option to a higher delta (closer to the stock price) to reduce our directional exposure and collect more credit.

We show that when a covered call is traded, the extrinsic value of the option will decrease as the underlying moves favorably, or even against us. Tom and Tony discuss how we can use extrinsic value as an indicator for when we might want to roll our short options.

Watch this second segment of “Top Dogs For Smaller Accounts” with Tom Sosnoff and Tony Battista for the takeaways and other information about when to roll covered call positions.

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