On May 27, 2020 we decided to close our Poor Man's covered call with Aegon, Dutch stock listed on Amsterdam Stock exchange with a loss.
With our strike price EUR 2.3 challenged we decided to close, rather adjust and roll-up / forward - the money is just not worth of it - its too much work for too little gain.
Here at OptionsBrew.com we like to keep it simple - buy/write operations with covered calls only. Poor Man's covered call is a technique that might work well in the theory, but in the practice, it involves too many adjustments, and this is what we didn't want to do.
The main reason we don't like Poor Man's covered call is as follows if our short leg is challenged we don't have underlying assets to deliver, we have only long options that mimic this asset, but is not an asset.
Say, if this was a simple covered call, and our strike price was challenged we would just let options expire, our shares get called away and we would book a nice premium and value growth. Now we don't have actually shares to get called away, and we should buy them at the market price, or we should adjust our challenged leg and roll it up/forward. This is not something we want to do. Let's keep this as simple as possible.
When originally setting up this trade, we wanted to test idea how it works, and we achieved our goal - we learned how to construct a Poor Man's covered call, this is what we told:
This is more a joke trade, but for the learning process at the end of April 2020 we established the so-called Poor Man's covered call with less than EUR 100 on Amsterdam stock exchange-listed stock - AGN or Aegon. We like trading Amsterdam stocks time after time.
To close this trade, we bought back 2 contracts with short legs and sold 2 contracts with long legs:
- BOT 2 AGN MAY 29 '20 2.3 Call Option 0.20 EUR
- SLD 2 AGN DEC 20 '24 2 Call Option 0.84 EUR
- Running Total 8 Trades since April 16, 2020
- Trade P/L EUR 32.5
We still have 3 put contracts left with expiry on June 19, 2020, if assigned we will sell covered calls, if expires worthless we will sell more puts to generate income.