My
$TSLA Covered Calls saga continues. As many of you know, almost a month ago I decided to experiment with a 0DTE covered call trade on all 2800 of my
$TSLA shares.
I wouldn't recommend 0DTEs as a CC strategy. Stick to longer expirations. However, it has turned into a worthwhile example of how to manage covered calls when the stock moves against you. Naked calls are the most risky of options plays, while covered calls are the safest. Why? Because when you own the shares (making the calls covered), you can't lose money. Worst case scenario you are capping your upside.
By managing the covered calls by rolling them out in time and strike price, you can avoid getting your shares called away and collect more premium while you do so.
On that first 0DTE CC, I collected $4,480 in premium ($1.6*2800). Through a series of rolls, each time collecting more premium, I've amassed $11,508 in premium. So, if I made no other rolls, my worst case scenario today is that my shares get called away at $495 on August 21 and I keep my $11,508 in premium.
Now compare that result to if I had not managed these covered calls. My shares would have been called away on May 6 at $392.5 strike price and I would have kept the $4,480 in premium.
Which result is preferable? Managing of course. If I had not managed, at today's prices I would have missed out on $43.5 in share appreciation ($437.5-$392.5*2800 = $121,800 in appreciation).
There's three patterns to these rolls that you'll see in the chart below.
Pattern 1: My
$TSLA CCs start to get challenged and I need to be defensive. I buy time and distance away from the stock price and collect a credit.
Pattern 2:
$TSLA pulls back in share price. So I roll down and pull forward the expiration date. Why? Theta Decay is stronger with a closer expiration and I want these CCs to decay to nothing as soon as possible, giving me a profitable exit.
Patten 3:
$TSLA rallies back. When this happens, my strike price starts to get tested again and I need to roll out defensively again.
The key point to remember here is that you must roll for a credit. As long as you keep rolling for a credit, you will continue to accumulate profit and eventually the market and Theta decay will give you an opportunity to exit your covered calls profitably.