The Rolling Strategy – See How We Use It Successfully In Options Income Blueprint
February 15th, 2021
Last week was a bit slow by our standards, but still a profitable one.
We closed one position, a Bank of America (BAC) put, pocketing $64 in cash per contract. This was our fifth winning trade so far in February, bringing our total monthly income to $270 with two more weeks to go.
It was also a great example of the rolling strategy we use so successfully in Options Income Blueprint.
On Jan. 19, with the stock trading at $32.83, I recommended members sell the BAC Jan Week Four (1/22) 32.50 Put for $0.30, or $30 per contract.
While that may not sound like a lot of money, consider that we were only tying up $3,250 in cash — i.e., the amount that would have been needed to purchase 100 shares at the put’s strike price if we happened to be assigned.
So, that $30 in income represented a potential 0.9% return over the cash we were putting up in just four days, provided the option expired worthless.
We entered this trade just after Bank of America announced earnings, taking advantage of still-elevated volatility levels. Shares were trading lower after the bank reported better-than-expected profits, and they continued to fall over the next two days, dipping below our put’s strike.
On Jan. 21, with the stock trading at $31.87, I recommended members roll the put out one week to avoid assignment and bring in more income.
We rolled to the BAC Jan Week Five (1/29) 32.50 Put, picking up another $25 in cash and bringing our cash in hand to $55.
This also bought us another week for shares to move in our favor and get back above $32.50. However, that’s not what happened.
BAC continued to move lower, dipping below $30 on Jan. 28, the day before the new put was set to expire. So, I once again recommended that members roll.
We kept the strike price the same, but this time moved the put out two weeks to the Feb. 12 expiration. We added another $15 to our cash in hand, making it $70.
Shares bottomed out a few days later and then turned higher. By Thursday, they had run above $33, and I issued a closeout alert.
We bought back the put for $6, booking a profit of $64 per contract. That worked out to a 2% rate of return in 24 days, or 30% on an annualized basis.
As I said, this trade was a great example of our rolling strategy in action. Rather than take a loss on a trade that had moved against us, we patiently managed the position and closed out another winner.
This is a holiday-shortened week, with the market closed today for Presidents’ Day. But I don’t expect it to be short on profits!
We have four put positions set to expire this week. Our First Solar (FSLR) and General Motors (GM) positions are currently on track to expire worthless, although we may be looking at early closeouts if the stocks move higher.
Our Apple (AAPL) and Gilead Sciences (GILD) puts are in the money. But with each, the current share price is less than 1% below the respective put strike. And, as I demonstrated today, we can easily roll these positions out if they don’t move in the preferred direction.