Covered Calls and Cash Secured Puts (Part 24)

In the last post I presented some critical thinking ideas that I watch for to avoid being scammed. Especially knowing MacDuff’s history, caveat emptor.

That detail aside, the example shown here does show assignment avoided and more time being enlisted to generate profit for the trade. Rolling the short call out and up (RO & up) from $17.50 to $20 with the stock at $19.23 allows for the opportunity to make an additional $250 on the position should the stock rally to $20 or higher at August expiration.

Before I proceed further, I want to discuss an occasional difference in thinking between CC and CSP trades.

This blog series began with explanation of why CC and CSP trades are synthetic equivalents.

While this is true, some nuances of the management techniques are different for CCs than they are for CSPs. Understanding these differences is generally about learning a “mirror image” way of thinking that I am trying to point out along the way. I first introduced this mirror image concept with the “loaded question” reference back in Part 17.

The parallel instance for RO & Up for an ITM CC would be rolling down and out for an ITM CSP. The former would occur in a bullish market whereas the latter would occur in a bearish market. The former generally raises profit potential on the trade whereas the latter generally reduces profit potential on the trade. Never would the two occur in the same trade.

Earlier in the blog series I purposely addressed “the CC/CSP trade” in most instances to imply interchangeability. Please accept this disclaimer as reason why I have switched to addressing just CCs or just CSPs since I started to discuss trade management techniques. Once again, while the management techniques can be done with either CCs or CSPs, they would never be interchangeable for any one given trade.

This matter will likely surface again as I go through additional examples in future posts.