ENPH covered call update

About a month ago I posted about a Dec 16 $350 strike price covered call. Back then ENPH was selling at around $310 and the expectation was for the call to expire worthless.

The call expires tomorrow and yesterday ENPH closed at $332.80. Only $17.20 to the strike price and the stock is volatile enough that it can happen. What to do? Yesterday I could have bought it back at under one dollar but choose not to do so. I have a ten cent GTC buy to close order which I hope executes letting me sell a new call about a month out. With the stock near $350 the new call should have a strike price between $380 and $390.

Why the ten cent GTC buy to close order instead of letting the call expire worthless? If it expires on Friday I can’t sell a new call until Monday. Three extra days to expiration is worth more than ten cents!

While the market might be down, covered calls let me cover my expenses without selling shares. One has to be vigilant because it’s an opportunity play. Just now ENPH is down pre market $4.80 to $328.00. For me that’s GOOD news!

The Captain


I understand your reasoning, but I think you are not taking into account the whole picture, i.e. how much you will get for the next short call that is one month out (especially if you are selling the same strike for one more month).

Why don’t you use a spread order? I know buying back the short call for anything other than a miniscule amount kinda hurts emotionally, but the reality is that you want the stock to be as close to $350 as possible close to the short call’s expiration date, when you buy back the short call and sell the 380 call call one month out, in order to maximize the time value you get for that extra month.

As a spread order you are effectively selling a diagonal spread. Here is the value of that calendar spread (380 call Jan20’23-350 call Dec16’22) over the last two weeks:

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But I’m NOT! With stocks bought specifically for selling covered calls the strike price is at or near the money. With growth stocks the strike price has to be high enough to minimize the probability of them being assigned. To be worth doing the stock needs to have a high implied volatility. ENPH qualifies, TSLA does not.

The Captain

Even with the higher call that you want to sell, when you are this close to expiration it is more beneficial for the underlying to rise closer to the expiring short call’s strike price. So rooting for the underlying to go down in order to buy back at $0.10 does not make much sense IMO, at least not if you are planning to sell the next month at the same time. Point in case, ENPH is down $12 at the moment, your short call is down $1, but the $380 strike call that you want to sell is down $2.

Anyway, this is the wrong board? Not sure why the OP was posted here.

I’d like to understand what this chart is telling us. Not because I am in this trade, but because I do many other trades using options (mostly long LEAP calls, and bull call spreads) and I like to understand them as much as possible.

Does this chart say that buying back the Dec 350 call and selling the Jan 380 call on Dec 6th instead of on Dec 15th would have resulted in an extra ~$3 in @captainccs pocket? (presumably due to more time value in the Jan call than in the Dec call at the time)

(I wish the Options board still had some activity, but sadly all the boards are essentially dead except for METAR.)

The other way around.

The chart shows the value of the (long) diagonal spread:
Long 380 January call
Short 350 December call

I like to graph the long calendar spread this way so that it has a positive value - it is difficult enough… having negative bids and asks on my trading screen would be even more confusing.

When rolling a covered call out (and up in this case), you effectively want to sell this spread for a credit, since you are doing the opposite trades. Your are selling short a calendar spread: SELL the January 380 call and BUY back the December 350 call that you shorted a while ago.

So on December 6th you would have received $3 credit for the “roll” trade, whereas on December 15th you would have received $6. And today, with ENPH down $15 right now, the spread is only worth $4.50.

That, indeed, would be ideal but one takes what one can get. On the other hand, once the price is down 95% there is no sense in holding on to the position. It’s time to look for the next trade. Just because I was planning for the optimal trade it’s not the only possible trade. One takes what one can get. :wink:

So rooting for the underlying to go down in order to buy back at $0.10 does not make much sense IMO, at least not if you are planning to sell the next month at the same time.

I’m not rooting for the underlying to go down in order to buy back at $0.10! But once it goes down to $0.10 it makes no sense to hold on to the position. Time to close and look for the next trade!

Not sure why the OP was posted here.

Because I chose to post it here, among Foolish Friends. :wink:

The Captain


So @captainccs trade is better this way! Roughly $3 better to have done the roll today rather than 9 days ago. Obviously at the time there is no way to know, but it seems to have worked out well this time around.

I made a stupid mistake almost exactly two years ago. I had a bunch of puts that I wrote, most were sure to expire worthless, but one was still a month out (Jan) and I wanted to take the capital gain in Dec. Well, by mistake I bought back a bunch of current month puts (the Dec ones instead of the Jan ones) that were sure to expire worthless. What added salt to my wound was that my stupid broker would only accept a nickel as the limit price even though the ask was a penny! The price I got, of course, was a penny, so they just did it to unnerve me while placing the erroneous order.

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My previous brokers also had 5 cent increments but my current one accepts any price in penny increments.

The Captain

Yes, the best would’ve been to do the roll yesterday at the close, because today the spread dropped below $5. Unless ENPH rallies tomorrow. Of course it is impossible to know beforehand when the best moment is.