From In-The-Money (ITM) to Out-Of-The-Money (OTM) Covered Calls: Mitigating Losing Trades – June 22, 2026
Selling ITM covered calls is a defensive approach to the strategy; selling OTM covered calls is a more traditional or aggressive perspective. In this article, a series of trades I executed with Wheaton Precious Metals Corp. (NYSE: WPM) are analyzed. The initial trades were defensive in nature (ITM) and for the next contract expiration I moved to a traditional approach (OTM).
Real-life example with WPM (3 ITM strikes)
- 1/26/2026: WPM trading at $152.79
- 1/26/2026: STO 1 x 1/30/2026 $146.00 call at $8.13
- 1/26/2026: STO 1 x 1/30/2026 $144.00 calls at $9.70
- 1/26/2026: STO 1 x 1/30/2026: $142.00 call at $11.00
- 1/30/2026: All precious metal stocks crashed as a reaction to the nomination of the new Fed Chair
- 1/30/2026: WPM closed below all ITM strikes; all expired worthless and 300 shares were retained at a cost basis of $143.11 (ouch)
- 2/2/2026: I still liked WPM; considered Friday an over-reaction
- 2/2/2026: WPM trading at $131.87
- 2/2/2026: STO 3 x 2/6/2026 $140.00 calls (OTM) at $1.06
WPM OTM call calculations
- Red circle: 5-day trade
- Yellow cell: Breakeven price points (at the time of the latest trade)
- Brown cell: Initial 5-day returns
- Green cell: Annualized initial returns
- Purple cell: Upside potential, if shares move up to or beyond the $140.00 call strike))
- Pink cell: Dollar amount of premium collected
- Red cell: $ amount of upside potential
Final OTM results after expiration of the 2/6/2026 contracts
WPM closed on expiration Friday at $135.98. Here are the final results using the BCI Trade Management Calculator (TMC):
- Red arrow: Exit strategy selected
- Blue arrow: Price of WPM at expiration
- Green cells: Final realized option profit per-share, for 300 shares and % return
- Brown cells: Final unrealized share gain per-share, for 300 shares and % return
- Pink cells: Combined realized & unrealized total dollar profit and total % return
Discussion
The unexpected market reaction to the Fed Chair nomination resulted in an unrealized ITM loss. The ensuing OTM covered call trade resulted in an unrealized (shares not yet sold) gain. My plan is to continue writing covered calls, since the next earnings report is scheduled for 3/16/2026 and will not interfere with continuing cash flow from these trades. Not all trades will be winning ones. Understanding the reason(s) for losses and knowing how to mitigate will, ultimately, result in superior trading results.
Author: Alan Ellman