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  • Rolling-Down a Covered Call Trade During a 3 1/2 Day Contract – December 8, 2025

    Dec 08, 2025 Uncategorized Comments Off on Rolling-Down a Covered Call Trade During a 3 1/2 Day Contract – December 8, 2025

    It is never too late to implement covered call exit strategy opportunities. In this real-life example with Howmet Aerospace Inc. (NYSE: HWM), a defensive covered call trade was rolled-down during a holiday-shortened week. Price movement for HWN was, unexpectedly, volatile during this brief contract.

    Real-life example with HWM

    • 6/30/2025: Buy 200 x HWN at $185.40
    • 6/30/2025: STO 2 x 7/3/2025 $180.00 calls at $5.97
    • 7/2/2025: BTC 2 x 7/3/20$180.00 calls at $0.60 (10% BTC guideline)
    • 7/2/2025: STO 2 x 7/3/5 $177.50 calls at $1.15 (rolled-down)
    • 7/3/2025: The 7/3/2025 $177.50 strike expires ITM, and shares are sold at that $177.50 strike price (market closed at 1 PM ET due to the July 4th holiday)

    HWM: Volatile price chart for the week of the 7/3/2025 expiration

    • The dramatic whipsaws that week was related to HWM being removed from 2 Russel indexes (3000 and 1000 value indexes), resulting in shares having to be sold
    • The price decline triggered the 10% BTC/GTC limit order
    • Rolling-down was the path selected to mitigate losses

    Broker screenshots of initial and rolling-down trades

    • #1: Shares purchased
    • #2: Options sold
    • #3: 10% BT/GTC limit order entered
    • The $180.00 strike was rolled-down to the $177.50 strike
    • This resulted in a net credit of $0.55/share, an additional $110.00 in premium
    • This locked in a maximum value of $177.50 by the next day’s contract expiration

    Final trade status at expiration on 7/3/2025

    • HWM closed at $181.06
    • 200 x HWM sold at the rolled-down strike of $177.50
    • Loss per-share = $7.90 ($185.40 – $177.50)
    • Option credit = $6.52/share ($597 – $0.60 + $1.15)
    • Net loss = $1.38/share = $276.00
    • Loss w/o options = $868.00 ($4.34 x 200)
    • Total option mitigation benefit = $592.00

    Discussion

    • Significant returns can be generated with 4-day defensive covered call trade
    • Option trades can be crafted to align with all market environments and personal risk tolerance
    • In the case of HWM, a significant initial 4-day return was captured and ultimately resulted in a minor loss despite a significant share price decline
    • Not all trades will be winning ones, but losing ones can be reduced using stock options and position management

    Author: Alan Ellman

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