NaughtyPines
做多

OPTIONS TIP -- ROLL YOUR COVERED CALL SHORT UP, EVEN IF ITM

AMEX:UNG   UNITED STATES NATURAL GAS FUND LP
I recently set up a covered call in UNG             , with the short call strike at 8.00 (Feb 19 expiry). Price has hurriedly broken my short call strike and is "in the money." What do I do now?

One option is to do absolutely nothing. After all, my expectation when I put on the setup was to get called away at 8.00 at expiry or take the whole setup off in profit prior to that, so all is fine and dandy from that perspective.

Nevertheless, I am not one to pass by potential, additional opportunities in a setup that has gone better than planned, so one thing I should at least look at is whether I can roll the short call up to a higher strike for an additional credit such that my "call away" price is better and my cost basis in my underlying is reduced even further. Depending on how I feel about the trade and whether I can get a credit for the roll, I can either roll to a higher, in the money strike, or to one that is out of the money (with the important point being getting an additional credit; if you can't do that, don't roll).

In this particular case, there's not much I can do that's sensible at this moment in time. The only expiration in which I can both improve the short call strike (to 9) and receive a credit for it (an additional .40) is the Jan 2017 expiry, so I'm going to watch and wait on a potential roll more toward expiry, at which time some weeklies might become available that would have half strikes to use (e.g., 8.5). After all, getting called away at 8.5 beats getting called away at 8.00 ... .
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