7 Minute Read

Video Tutorial: How to Repair a Covered Call to Reduce Risk

January 27, 2016

By | 16 Comments

Tackle 25 Covered Calls Premium System. Covered Calls are ideal for your IRA and can help you compound those gains and generate cashflow. Click on the image to get this premium trading system right away.

Last update: July 2021

Watch and learn as Coach D demonstrates how to roll a covered call down and out to offset risk and bring in more premium as he repairs a protective call write that has traded below the strike price and break-even price point. Don’t miss out on this vitally important repair strategy!


Tackle Trading Resources on Covered Calls

Continue learning about this powerful options trading strategy: the Covered Call. Tackle Trading has all the resources you need to MASTER this strategy like a PRO.

Covered Call For Beginners [Free Articles]

Beginner

Options Theory: Collaring Earnings

Earnings season is upon us. Whether it’s a straight stock position, you’re holding for the long run, or one that you’re selling covered calls on there is a straightforward way to limit your risk.It’s called a collar.

Read More »
Beginner

Tackle Today: Do you trade Covered Calls?

Last update: August 2021 ≈ Cash Flow and Growth ≈ I put a poll question in the clubhouse recently asking the Tackle Trading community a simple question: Do you trade Covered Calls? If you haven’t answered the question yet, you still can HERE. Of the 5 potential answers, the breakdown was interesting. 38% said YES

Read More »

Portfolio Protection For Beginners [Free Articles]

bear market survival guide
Beginner

Long Put: IWM or RUT

In this video tutorial, Coach Matt walks thru how he has been handling the additional macro risk in the market by trading Long Put options on the IWM.

Read More »

Trading Journals

Good traders keep excellent records. Quality trading journals are essential to your progress and growth as a trader and keeping good records will help you learn more from both your income and expense trades.

Learn more about HOW the Tackle Trading Journals can help you become a professional trader.


Reports [Premium Content]

The Weekly Premium Reports are a part of the PRO subscription.


Tackle Trading Playbook [FREE for PRO Members]

PRO Members now have unfettered access to the Tackle Coaches’ personal playbook containing thirty-one powerful trading strategies categorized according to the Options Greeks. Bullish, bearish, or neutral market conditions, this Playbook will help you dial up the right call more often and with greater confidence.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

16 Replies to “Video Tutorial: How to Repair a Covered Call to Reduce Risk”

  1. Nicholas Kingsbury says:

    Hey thanks Noah. Yea I have to done something similar to my long term positions. Works great from a capital preservation standpoint. I purchase gpro at just under $18 and now it is $10 something yet my YTD is only down -$150. That is obviously way better than being down $-800. That was my first live collar so I’m sure in the future I can do better. Keep up the good work. It is greatly appreciated and valued.

  2. MatthewMcQueary says:

    Very helpful (and timely) Noah. Good explanation of when and why you would choose to sell ITM calls, serving triple purpose of offsetting delta, lowering BE, and bringing in premium to pay for insurance. Thanks!

  3. ERICSIMMS says:

    I could have had a V8! I needed to learn that a few months ago . . . better late than never.

  4. Noah, I’m confused.

    I bought GPRO @19.07 and it dropped like a rock. I’ve been selling calls since then but lower strike prices. The current call sold was the Feb 16 11.

    When I go to the risk graph, there is no break even point and the whole graph is way below zero.

    Can you help me on this?

    Thanks!

  5. ColinDisch says:

    Great Video Coach D. Thanks.

    Could you do a video showing how to manage a covered call on USO, where the short calls are now in ITM

  6. Coach D says:

    Christian,

    you need to factor in your p/l year to date and then divide it by the number of shares and then subtract that from your original purchase price of the stock. (make sure to factor any current profits from your current covered call.) If you’re working from your P&L year to date it will be easier to determine your true breakeven point. It may take several weeks or even months to repair the full position. Weigh the cost and the time involved and determine if its worth the time and energy to repair.

  7. Coach D says:

    Colin,

    If the calls are in the money, it’s usually best to let them call you out, otherwise you’ll buy the calls back at a loss further raising your cost base. It’s usually best to let them call you out unless you have a very strong conviction that USO is going to rise. Without the specifics on the USO position in question, I’m unable to provide more specific insight.

  8. KEITHGIUNTA says:

    Gino,I’m confused. Watching the repair video you sold a call at 13. Yet the stock price is currently around 14. Doesn’t that pretty much guarantee that you will get called out? What am I missing here?

  9. KEITHGIUNTA says:

    Sorry, not Gino. Coach D.

  10. RaymondRoyer says:

    Love it. Thanks. 🙂

  11. Coach D says:

    Kieth,

    It is a protective call write, which is designed to protect capital using the intrinsic value of the options to offset the downside risk and the extrinsic value of the options to recoup losses. It is a defensive play for when a long stock or cash flow covered call goes bad. Rolling down and out to get more premium to offset risk. If done properly on the right kind of equities you can buy a quality covered call stock, like the candidates from the tackle 25 without exposing yourself to too much risk. It’s o.k. to get called out in this case because not only will we get all of the capital back, with the trade adjustments we’ll actually still come out winners even though the stock has dropped over 6 points which would have resulted in over a 30% drawdown on the capital used in a cash account and a 60% drawdown on capital used in a margin account. yet I’m walking away unscathed with about a 7% return if we end up getting called out.

  12. Bill Trimborn says:

    Awesome explanation! Thanks Noah!

  13. BONNIELEAHY says:

    The video and the dialogue of questions and answers inspired by the video have been nothing short of awesome. Thank you!

  14. KEITHGIUNTA says:

    Thanks Noah. I appreciate the clarification. (Going to have to read it a few more times, though. lol)

  15. BONNIELEAHY says:

    Noah, I have much to learn from the following trade. Any thoughts will be greatly appreciated:

    RE: CRUS Trade Jan 5 STO Feb1 16 call 29.5 Strike, Jan 7 Trade went way OTM with rapid downward movement of stock. BTC and STO CRUS Feb1 16 ITM 26 call to reduce cost to 25.66. CRUS rose in price and kept 26 call based on Extrinsic value over 1% rule. The remaining Extrinsic value was 3%. CRUS gaps up 15+% and am now more that 15 strikes ITM. 26 call became too expensive to buy back. At net cost of 25.66, will be assigned with zero loss and zero gain(plus or minus). I called TOS to confirm position and they gave me two free trades to cut my trading cost. One question is: Are there situations when one discards the less than 1% remaining Extrinsic rule to adjust the trade earlier which would have been much more cost effective? Another: When the stock started the downward spiral, I assumed that to buy a put at that point in time would have been too expensive. How do I approach protective puts when the downward movement has already accelerated?

    Thank you very much for any insights.

  16. DennaDean says:

    Very helpful, thanks so much!

Comments are closed.

Chart Modal

Tackle Trading

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.