"If the stock ends between $42 and $46 next month, then the profit is:
-$400 (from stock buy back above) + $300 (premium collected from 40 call assignment) + $150 (buy back 44 short put/roll over) + $310 +$310 (resell call and put into next month) - $400 (range of 42 to 46) =$270.”

hi Etradewhome, what if the stock for the 2nd (rollover) month does not expire within $42-46? thanks

Hi WinOption,

Thanks for posting, $0.10 as the reward!

If the underlying goes near $46 when you have the short guts constructed, you have to buy back the 46 put. Whenever you buy back the short put, you take a profit (because put is cheaper as the underlying moves up). Sometimes you will have a temporary loss due to delta increase from short call, but it will be offset by time value.

After buying back the short put, you have to sell to 47 or 48 put immediately, not the same month as the short 46 put, but 1-2 months forward. This is to collect more time value to offset any temporary loss due to delta. If it keeps rising, then buy back again the 47 or 48 put, then sell into 49 or 50 put, again further months than the original 47 or 48 put, for more time value.

One of the reasons why exchange traded funds is a better choice than single stocks because the market does not keep rising uninterrupted. It will stay flat, or retreat a bit, then probably climbs again. Everyday in this 'ting-tong position' will cause time decay in the sold options. Good for sellers.

If th stock drops near the short call price, do the same: roll down and roll forward.

Please write in this forum again if we do not answer your questions properly.

Have a nice week ahead.


----------------------------
Any commentary or illustration generated in this forum is provided for educational purposes only. You must decide your own suitability to buy or sell options. This is neither a solicitation nor an offer to buy/sell stocks or options. Commission was not taken into calculation. Note: You have to know the risk of options writing before execution, especially naked call/put writing, bull/put spread, covered call writing, short straddle, short strangle, short guts, short/long iron butterfly, short/long wingspreads and short/long box. Forum participants have to exercise responsibility and sincerity in message posting.