Roll Forward and Up GPS Jun 05 '20 9.5 Covered Call Option 0.39 USD (13% potential income in 18 days)

On May 29, 2020, we rolled forward and up (diagonal calendar)  1 covered call on GPS stock  - a position originally established a couple of weeks ago at the strike price of $9 (assignment). Covered Call on GPS - Potential income return 3.77% in 11 days

This is a good example of how a losing trade can turn into a profitable. We agreed to get assigned on GPS stock at the strike price $9, when the stock was actually trading under $8. Thanks to the covered calls we were able to break even our cost basis, and now with this latest trade we are looking for a nice profit after this roll forward/ up 

Originally it was meant to be a called away trade, as GPS stock was trading a good level above our $9 strike this week (on Wednesday it traded well above $10) and we were looking to let it go - our shares get called away, we get back money and jump on other stock, but it turned out completely opposite. 

GPS stock fell below our strike price of $9 on the expiry day, and it was agreed to roll this trade to the next week's expiry + roll it up for additional possible value growth of $0.5 per share.

Here is the trade setup:

  • BOT 1 GPS MAY 29 '20 9 Call Option 0.06 USD
  • SLD 1 GPS JUN 05 '20 9.5 Call Option 0.39 USD

Here we spent $6 to close the exsiting trade and recieved $39 for the roll with a higher strike price on expiry. Our total gain from this trade $0.33 or $33 (before comissions)

what can happen next:

GPS is trading below our strike price of $9.5 at expiry date (June 05, 2020), in such case, we keep the premium and sell more covered calls to lower our cost basis. 

In case GPS is trading above our strike price of $9.5, our shares get called away at strike price $9.5 and we realize our max gain  $117 ($9.5-$9+$0.34+$0.33), or 13% potential income in 18 days

Break-even: $8.33

GPS covered calls

  • Running Total  11 Trades since May 1, 2020
  • Trade P/L $168