When Rolling Up and Out Works Out




There has been a lot of volatility in SPY these past couple of weeks.  Last week, we heard news of the slowdown in China, which sent share prices down over 2%.  This week, there was a pop in the market because Nvidia had a huge beat.  This caused my covered call on SPY to go ITM, which resulted in a nice gain at the end.


Recently, I have been targeting about 15% deltas for daily SPY covered calls since this seemed like a good balance of risk and reward.  This also roughly equates to a 1% lift in SPY per day, which is intuitively implausible.


Well, on August 22, 2023, SPY jumped from about 438 to about 443, a 1.1% increase and my 442 strike would close ITM.  Luckily, I was able to roll up and out by 2 days (an August 25 expiration) for a 445 strike (delta = 39%) with a positive premium of 0.28.


Luckily, the market regressed and SPY closed at 438 on August 24 and I was safe again.



date

spy price

strike

expiration date

premium

delta

spy closing share price

close out price

notes

2023-08-21

439.32

443

2023-08-22

0.27

0.15

437.92

0.01


2023-08-22

437.92

442

2023-08-23

0.31

0.16

443.06

1.32

ITM and rolled up and out!

2023-08-23

443.06

445

2023-08-25

1.6

0.39

438.95

0.21

Rolled down

2023-08-24

438.95

444

2023-08-25

0.32

0.15

437.13

0.02


2023-08-25

440.89

445

2023-08-28

0.29

0.15





At the end of the week, I made 2.79 per share in premium and paid (so far) 1.56 for a net premium of 1.23.  I typically target about 0.20 / share / day, so this was a lucrative week for me.  Knock on wood!


Lessons learned?  Not certain.  I could have held off on trading for NVIDIA earnings, but who could have predicted such a large beat?  Analysts already priced in their expected performance into SPY.  And there are always going to be earnings and I’d generally rather not be a prisoner of earnings calls.  What do you think?

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