The "Daily Call" From Option Alpha

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#530 - "Mind Your Pennies" Mar 06, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to be talking about why you should mind your pennies. This is something I say to myself personally, so yes, I do have lots of conversations with myself. I banter back and forth with myself and my alter ego and one of the things I always say to myself is that I've got to watch the pennies and this is something I've done forever and it's definitely a product of how I was raised and the environment I was raised in, how my parents thought about money, how people around me thought about money, but I know that now, looking back on it, it all shaped kind of who I am today with regard to money, but I am definitely somebody who is watchful of the pennies that can add up and ultimately become thousands and thousands of dollars in either potential investment income or lost investment income and what I'm talking about is just little things all the time.

And so, I don't mean that you should scrimp and save and that you should cut your cable because you just want to save every dollar and penny. There's obviously a point to which you should enjoy the things that you work for, but what I'm talking about is just paying attention to everything that you are spending money on, to broker commissions, to little surcharges that you see on your credit card or your billing statement or little transaction fees or even things like we went recently. My wife and I took our kids to see one of the shows at the University arena for kids. They had a group come in that was a kid's show and when you would go online, you could go online and you could pay for the tickets online, but there was a $10 surcharge for paying for the tickets online which I thought was kind of crazy. So then, I called them up and I said, "Hey. Do I have to pay the surcharge?" And they said, "Oh. You only have to pay it if you pay online. If you just buy the tickets at the box office when you walk in, you don't have to pay the $10."

Well, that little thing, if I do that 100 times over my lifetime, I mean, that's thousands of dollars that I end up saving and while it doesn't seem like much and I think many people might pay the $10 for convenience in some cases and maybe in some cases, I would pay the $10 depending on the circumstance, but it's those little things that I think you really have to take care of that ultimately add up. I know for me, I know that. I know at the end of the day, in 10, 20, 30 years from now, because I've saved $5 here and saved $10 there that it's going to make sense. It's going to add up and it's going to be thousands of dollars that I otherwise wouldn't have had. A lesson for today I guess is – Mind your pennies. Watch the pennies. The dollars will take care of themselves. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#529 - We Cannot Recognize The Difference Between Positive & Negative Experiences Mar 05, 2019

Show notes

Hey everyone. This is Kirk here again at Option Alpha and welcome back to the daily call. Today, we're going to talk about why we cannot recognize the difference between positive and negative experiences. This is something I heard recently and I thought it was really insightful. I was reading another book and I heard somebody say this, the author who said this and he basically said this exact line which was – "We can't recognize the difference between positive and negative experiences." And the context of this was that we have no idea if whatever experience we are currently going through right now is going to ultimately turn out to be a positive or negative outcome for us. To use I guess maybe a really simple example, if you had a really bad experience somehow in your childhood, well, that undoubtedly shaped you into the person you are today and hopefully you had a chance to learn or grow or reflect or develop from that point forward and that potentially negative experience that you had somewhere in your childhood has now created a positive outcome for you and kind of moved you in the right direction. Maybe you're more determined, maybe you work harder, maybe you are more cautious in some areas, whatever that ends up being, but we don't know that at the time. Looking back, I think many people would always say like "I wouldn't change a lot of things." But it's made them who they are today.

I think the same thing could be said in trading, is that when you go through a trade and it's a good trade, you don't know necessarily if that ultimately is going to lead you down the path to more good trades or potentially actually leads you down the path to making dumb decisions and stupid trades. I've seen this all the time where I think people get into a false sense of positive trade security where they make a trade and it was a dumb entry, but then they have this false positive where they actually make money on it. You could look at potentially bitcoin or pot stocks or potentially IPO stocks, long call options, long puts. People know they shouldn't be doing most of this stuff and then ultimately when they make a trade, they have this false sense of positive outcome that comes about from this entry or position and that leads them down a path to actually having more negative consequences in the future. They think – "Okay. Well, this homerun worked or this position worked, so I'm going to keep doing more of that." And ultimately, the numbers and the math come back to bite them in the end.

I think it's really interesting, this idea that we just don't know what is positive or negative experience and so, I think as you're trading, try to remove yourself from the emotion of the market and of the moment. It may feel like you really have this big drawdown that's really kind of weighing on you and making you have lose sleep at night, but maybe that's exactly the type of market situation that ultimately teaches you that you have no control over the market and that you don't know where stocks are going to go and that things are unpredictable to some degree and so, maybe that negative experience is going to set you up for success later on, you just don't know it yet. Because you're so caught up in the moment, you haven't removed yourself from that experience. Hopefully this helps out. Again, just kind of [Unintelligible] on this day. I would love to hear your guys' comments and thoughts. Let us know. Shoot us an email. Add a comment to the post or on social media, whatever works best for you and until next time, happy trading.

#528 - Why I Enter Trades I Hope To Lose Money On? Mar 04, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. On today's call, we're going to answer the question – "Why I enter trades that I hope to lose money on." First, many of you guys who might be long-time listeners might've recognized this, but I'm actually back in my office finally and able to record on my nice microphone and setup as I've been travelling the last couple of weeks and so, a couple of the daily podcast were not necessarily the best audio. I think it still kind of gets the point across, but I don't know. I just like to kind of be here and get the recordings done in my office with a better microphone, so hopefully it's a little bit better audio moving forward for you guys.

The topic from today actually comes from a question that somebody had emailed in after we made an adjustment the last month or so in our DIA and QQQ positions. And so, what happened was, is that our portfolio was kind of centered a little bit bearish where the market was at the time and we adjusted the positions that we had in DIA and the Qs and converted them from credit spreads where they were call credit spreads into iron butterflies or iron condors. And what I had said in the trade commentary at the time was I hope that we lose on these positions and the idea with that comment being, that because our overall portfolio was bearish, the adjustments that we made to those positions were bullish in nature, meaning that they would've made money if the stock stayed higher, so the adjustments to add put credit spreads were naturally bullish. In that single position, if we zoomed in on that and we didn't pay any attention to the rest of the portfolio, yes, I would want DIA and Q to remain higher because then, those individual positions would've won money, but it would've totally lost the whole concept or the whole perspective of the rest of the portfolio because everything else would've lost money and those little tiny positions would've made a little bit of money.

The reason I say sometimes I enter trades that I hope I lose on is because I'm entering trades that are trying to help adjust or hedge existing positions and that's not a bad thing. It's actually a good thing for overall portfolio stability and to reduce drawdowns long-term. We don't want to have these huge ups and downs in our portfolio. Sometimes when we add positions, it's not because I'm really excited about the position, nor do I really think the stock is going to go whatever direction we're trading, but it's more of a hedge play and I really hope that I lose on the hedge because that means that things turn around and they kind of come back our way and we win on the bulk of the positions that we have versus win on that individual position.

Hopefully this kind of helps out and kind of helped clear the air. Again, I think a lot of people right now are just missing the concept of trading during these… I think of this like V-shaped bottom that we've had where it's been one directional for so long, then when the market made a bottom, now, it's one directional for again, another couple of months and I think people are missing the concept of high probability trading and assume wrongly that options trading is 100% probability trading, but it's not. I think you should have positions on in every direction at all times across different time horizons and that means by default, you're going to have some losing positions every month, but that's okay. So long as you consistently win on more positions than you lose, that's the name of the game. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#527 - Adding Low IV Trades When Re-Balancing Mar 03, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to talk about adding low IV trades when rebalancing your portfolio. This is a topic that I've been wanting to discuss now, again, for another couple of months because I see people doing this incorrectly or at least having the wrong thought process heading into building out a portfolio for a given expiration month and the misconception that people have is that we should only be trading high implied volatility ticker symbols. And while we've debunked this a number of times on both the research and the weekly podcast, even here on the daily podcast over the last four or five years as new research has come out, it still seems to be an issue that people are not willing to add low implied volatility trades to their portfolio. But the reality is that low implied volatility trades still generate a positive expected outcome. Now, granted, they don't make as much money as an option trade would when implied volatility is high, so because of that, we just want to allocate a little bit less money to ticker symbols when implied volatility is low and when implied volatility is high, we want to beef up or increase our position size to take advantage of the higher premium in the market. But what I see a lot of people doing is just totally skipping low implied volatility trades and the benefit to having them in the portfolio is that they add a factor of diversification to your underlying symbols that you otherwise wouldn't have gotten had you not added the low IV trades.

Case in point could be if the market is really moving in one particular sector or area, say oil or emerging markets, you could easily find yourself if you're only trading high IV trades, focusing on just two sectors of the market and placing all of your trades in oil and emerging markets. Now, this is okay in general because you have exposure to high implied volatility and that should work out, but at the same time, you have a highly concentrated amount of capital exposed to broad markets. And so, what if those markets continue to move aggressively in one direction or another or they completely reverse in opposite directions? What happens during those time periods and what do you have in your portfolio that can help buffer the impact of that type of event? What we've found in research is that when you build out portfolios not only that have high implied volatility trades in them, but also have a bunch of low implied volatility trades in a diverse set of tickers, an uncorrelated set of tickers, it helps in rebalancing and making sure that your portfolio finds and receives stable income over the long run. You do have this factor of diversification that you have to contend with as an options trader and you should be looking at as you're building out your portfolio every month. You should not be focusing on one or two sectors of the economy in the market. You should be focusing on things that have high implied volatility and then filling in the gaps with other diverse sets of tickers or ETFs even if they're low implied volatility just for the diversification benefit that you get. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#526 - When You Should Stop Laddering Into A Trade Mar 02, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to answer the question – "When should you stop laddering into a trade?" Someone asked, again, in our Facebook community and they said, "Kirk. Have you ever had the stats change enough on a trade you were laddering into that made you change your outlook on the trade and stop adding to it? If so, what happened and how often has this generally happen?"

I think there's only three cases or three reasons why you should stop laddering into a trade and actually, it's pretty simple when you think about it and we go through it here. The first one is you shouldn't really ladder into a trade if it's not moving. We actually do see this fairly commonly. More recently, we've seen this in some of our TLT positions where we execute the first laddered entry or the first set of contracts and the stock just trades dead sideways and in those cases where the stock doesn't move, that's actually a good thing. That's what we ultimately intended for the stock to do and if it happens early in the cycle, that's great. We don't need to add more positions, what I call hamburgering positions on top of one another. We don't need to stack another trade right on top of the existing strikes. If the original entry which was maybe one set of laddered contracts is doing well and the stock is moving sideways, why mess with it? In those cases, we'll just hold that one position, take money off the table and move onto the next expiration month if needed.

The second way that you would stop laddering into positions is if the stock made a huge move and it was outside of your long strikes on a defined risk strategy or it was just far enough away from your short strikes on an undefined risk strategy that it didn't make sense adding a laddered position. Again, sometimes, if a stock after you execute the first set of laddered contracts just makes a huge astronomical move and many times, we're trading risk defined strategies, so if a stock moves beyond our long strike, it doesn't make sense for us to add another laddered contract because it's already kind of breached some of those levels very quickly. Again, this is where laddering into positions helps reduce risk overall because had we got into the original position with say a full set of contracts versus just a mini set of contracts, we would've had a much larger loss on our hands. When the stock makes a huge move, laddering is there as kind of a backstop to protection to help make sure that you don't have a huge position on at the beginning and it actually stops you from increasing your position size when the stock is moving against you.

The third way that you would stop laddering into a new trade is if you've reached your portfolio allocation threshold. Many times, people who are new that come to Option Alpha, if they have a smaller account or it's on the smaller side, they'll add one or two laddered entries into a ticker symbol and that will basically max out their 5% allocation. And so, although I might add a third position to an underlying ticker, I always suggest that you never go above your threshold for risk and allocation. If you've gotten to the point at which you have enough laddered entries in an underlying ticker that you actually are at your 4% or 5% risk threshold, at that point, stop and wait for the positions to come off. It's just going to mean that you're going to enter less contracts overall during the course of a year or a couple of years. The probabilities still should work themselves out over time. It just may take a little bit more time because you can't enter as many trades as quickly. It's not a detriment. It's not a downside. It's just the reality. You should control your position sizing and not increase it beyond the 4% or 5% threshold that we talk about. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#525 - Are Weekly Options A Better Alternative Than Monthly Options? Mar 01, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to answer the question – "Are weekly options a better alternative than monthly options?" I don't think the answer to this question is that it's one or the other. I think there are certain instances where weekly options contracts might offer a better return in the long run versus a certain monthly contract. But overall, we generally like to trade monthly contracts and what we've seen in back-testing is that the tradeoff that you get when you start trading monthly contracts versus weekly is you get a little bit more stability in your portfolio and you have dramatically lower drawdowns. What we've seen in research… And I encourage you to go use our toolbox software and use our research on Option Alpha and look at this for yourself.

But what we've seen in back-testing millions and millions of trades and strategies and tickers over the last 20 years is weekly options contracts do have high return numbers. You generate a high ROI because you have a very quick trade that turns around in a simple time period and it makes sense. People understand that the contract expires next week and you either make it or you don't. But when you start increasing the frequency of those trades, meaning you have to do a weekly contract every week just to make up the same premium as doing one monthly contract, what we see is we see the Gamma risk start to reveal itself in a weekly strategy. Gamma risk is basically the risk that the stock makes a very small move and your option contract position makes a huge move in either P&L. What we commonly see with weekly contracts is that it doesn't take much of a move in the underlying stock to create a massive drawdown and this is the downside of weekly contracts, is that if you can hold through sometimes these really large drawdowns over the course of say 10 years or 20 years, then you end up potentially making more money than trading monthly contracts. Personally, I don't want to go through that. I would rather sacrifice a little bit of my return, so give up a little bit of upside potential for the ability to reduce dramatically the amount of volatility in my account. Some of the weekly strategies that we've seen that work best (and this is literally the best strategies that we've seen in our research) have sometimes a 50% or 60% drawdown over the course of 20 years. Now, I don't know how many people could actually or realistically work through a 50% or 60% drawdown. When I tell people – "Do you want to make the most money or do you want to have the most stable account?" Sometimes people will say, "I want to make the most money." But are you willing to hold through a 50% or 60% drawdown? And I think most people whether they say it or not, are not going to hold through that drawdown. They're going to get to that drawdown period whenever it happens and they're never going to keep up with the strategy. They're just going to bail on it and totally throw in the towel.

As opposed to say a monthly option strategy, many of the monthly option strategies that end up performing just as well though do not beat the weekly strategies, but again, their returns that are slightly lower end up seeing drawdown somewhere in the 20% to 25% range. And so, to me, this is a little bit more realistic. This is a little bit more rational to think that we could have a little bit of a drawdown, a bad sequence of returns in trades and I'm more than willing to hold through that type of drawdown than I am a 50% or 60% drawdown which to me, just seems like a massive hole to dig yourself out of. Again, the question is – "Are weekly options better than monthly?" I think in some cases, they could be a better alternative for certain scenarios. I generally think though that monthly contracts should be the core of what you do and then you can kind of feather in or sprinkle in weekly contracts as you see fit. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#524 - How To Profit From The Emotions Of Other Traders & Investors Feb 28, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to talk about how to profit from the emotions of other traders and investors. Someone recently asked again in our Facebook community and they said, "Kirk. How do you determine a psychological factor when considering options or do you consider any psychological implications upon noticing volatility in a certain stock or a movement in a certain stock? Are you just focused on the numbers or do you see value in the emotions of others in the market?" I thought it was an interesting insight. "Do you see value? Can we make a trade based on the emotions of other people and how do we discern the emotions of other traders in the market?" I think this is actually a very easy answer and the easy answer to this is that as options traders, we are always making trades based on the emotions of the underlying market or the mass or the herd and many people have said this. I don't know who was originally credited with it, but it's this idea that people think logically, but they act emotionally and it's no different in the options market. Believe me, having been in this for 10 years and even just seeing a lot of traders come through Option Alpha, we always get people who think logically and they understand the numbers of how options trading should work and how a high probability system should generate money over the long run, but for whatever reason, they are attached to one single trade that ends up being a loser in their first three months or their first two months and they know rationally that it's totally part of the business and part of the process, but for some reason, they just act crazy and overly-emotional because they're tied to it and so, they think logically, but they act emotionally.

This same thought process could be held in the regular markets when it comes to option buying and option premium. Because we know that implied volatility is always overstated, that means that on both sides of the market, long-term investors are always over-reactionary and overemotional in both directions. Call option buyers are euphoric and think that everything is going to go to the moon and so, they overpay for call option contracts relative to what actually might happen in the underlying security. Put option buyers get overly-fearful and really worry about black swan events and they over-purchase protection to the downside and that's relative to what actually happens in the underlying stock. I guess you could say as an options trader and specifically, as a premium seller, we're always trying to take advantage of the over-reactionary or extreme emotions on both ends. I think when it comes to the underlying stock, I think we always see an overreaction at some point. We recently saw it at the top in 2018 which we said was going to happen and we played that perfectly. We said that during the bottom and the early part of 2019, we're now seeing it in a little bit of a topping process here kind of like February, March of 2019 where the market has rallied so far, so fast, it's gone almost parabolic, nobody is fearful anymore and two and a half months ago, everyone was fearful. We see these large swings in emotions and I think as an options traders, what you have to do is you have to kind of drown most of that stuff out because you know markets are cyclical, they don't move in one direction and we want to take advantage of the broad underlying edge that we have in implied volatility. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#523 - How Do You Adjust Position Sizing When Rolling Option Trades? Feb 27, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to answer the question – "How do you adjust position sizing when rolling option trades?" I think this is a really great question and this came out of our Facebook community where somebody posted in there and they said, "Kirk, for your small position sizes of 5% or less, how do you account for the positions that moved against you and you're rolling forward a credit month after month?" For example, they said, "If your 2% position in TLT for January expiration needs to be rolled to February, what if you already have a 2% position in TLT in February at a very different strike price due to a sharp move up or down in the underlying security and now, you're basically forced to carry this blended position in February of 4%? So, 2% from January that you rolled to February and 2% that was already there kind of existing in place. And so, what if you then needed to roll both the positions forward to March due to some bad sequence of returns or trades? Can you now basically not take on any new bond positions because you're already at 4% exposure in TLT and that's already at the higher end of our threshold?"

I think this is a really insightful question, something that we haven't really covered before which is why I want to cover it on today's daily call podcast. I think the answer to their question is yes, you should probably stop adding positions once you reach that 5%-ish threshold that we talk about all the time. The reason that position sizing is so important is because it allows you and it's basically the checking balance that allows you to control risk based on how much of a position size you're building in any contract month. And so, by holding to that position size in a very firm way, meaning not breaking those rules under any circumstance is really your backstop and protection for major black swan events or bad sequence of returns. In this case, this is exactly how I would do it had I been trading through this scenario. If I build out a portfolio, I usually split out my allocation across two different expiration months, I would do 2% or 1% in one month and two or 1% in the next month and that allows enough room for me to roll to the next contract month and maybe even still then continue to add positions in the next month. But if you're trading a smaller account or if you just have over-allocated to this originally in the first two expiration months, yeah, you definitely want to reduce your allocation or keep your allocation at the 4% level and not add any more positions moving forward.

Now, an interesting thing to note is that if you start moving the position from say February where you have 4% allocation in TLT and you move that to March, well, now, all you've done is just roll it for a duration and extended the timeline of the trade and that's not necessarily a bad thing. That's very much the same thing as if you were to close out February and reopen a new position in March. Many people consider that to be the exact same position as just rolling the trade from February to March for a credit and I would say the same thing. I don't think it's a bad thing to actually keep rolling it forward. Even if you have to stay at the 4% level, it still makes sense to do it and you still get a credit for rolling into the next expiration period and extending duration, why not? Why not give yourself an opportunity to extend the trade and if the trade turns around and becomes a loser, at least by taking in a credit, you've reduced risk along the way. In fact, we've actually done this exact same process before in TLT and EWZ and GLD where we've had to roll and extend trades two, three, four, sometimes five months out into the future and that means that during those periods, we weren't adding to our position, we were just basically taking the same position and moving it from month to month to month because we could roll for a duration and credit. Hopefully this helps out. If you have any questions, as always, let us know and until next time, happy trading.

#522 - How Long Should You Hold Stock After Put Option Assignment? Feb 26, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to answer the question – "How long should you hold stock after put option assignment?" This question comes in from our community and somebody asked – "When you're put a stock, how long do you hold onto it and write calls against it? It seems that keeping the stock and writing calls against it is seriously reducing your return on capital compared to just eating the loss and selling more iron butterflies or iron condors." I think this answer is a two-part answer. The first part of this answer really comes in the form of asking yourself a question which is – "Do you have enough capital to hold the stock after assignment?" Many times, if we're selling say a spread or a single short put option, we want to make sure that we have enough capital on our account to hold the stock should we be assigned. Now, this isn't necessarily a requirement because you can easily reverse the trade with your broker even if you don't have the capital to hold the stock. The brokers realize this and they know that you can get out of the position which is why they allow you to reverse the stock the day that you're assigned. But if you want to hold the stock, the first question is – "Do you have enough capital to hold it?" If you cross that threshold and you say, "Yes, I have enough capital to hold the stock." Now, the question becomes – "Do you want to hold the stock?" And I think the drawbacks to holding stock are exactly what this person got at which is really just reduction and return on capital. As we all know, stock position and equity positions are very inefficient compared to an option contract.

Now, this doesn't mean that we shouldn't hold stock positions and we couldn't hold stock positions for a couple of months, but generally, we don't want to be in the business of holding long or short stock on an ongoing basis. My thought process after being assigned any contract is to just honestly look at the technicals and use the technicals as the foundation for determining if I want to hold onto the position for the next month or so. Oftentimes, if we get assigned on say a put option contract, I'll look at the technicals and if the technical signals we're using suggest the stock might go higher or could be in a bottoming process, I'm a little bit more willing to hold long stock for the next two months and sell covered calls against it. In fact, we've recently done this on a handful of securities that we've gone over in our weekly podcast where we talked about the assignments that we've had in GLD, TLT, EWZ, etcetera. You can check those out on the weekly podcast. All of those positions, we were assigned. We looked at the technicals. The technicals suggested that we hold the stock and so, we did and we sold covered calls against it and waited for a little bit of a rebound. Now, if we had looked at the stock technicals and we saw that maybe the stock at the time we had been assigned on our put option contract and our long shares actually was suggesting that the stock was going to roll over, then in that case, I might be more willing just to eat the loss or dump the position and move onto another contract strategy or another expiration month. Again, I think it is really a judgment call. For me, most of the decision on how long we hold it and how much of the assignment we hold comes back down to the technicals and then from there, we'll definitely use covered call or covered put strategies to reduce or increase cost basis depending on which direction we were assigned. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

#521 - Can You Close A Covered Call Before Expiration? Feb 25, 2019

Show notes

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we're going to answer the question – "Can you close a covered call before expiration?" This question again, comes out of our Facebook community. Somebody sent me a message and they said, "Kirk. Can you manage a covered call if the stock rallies up to your short strike before expiration?" Assuming you want to keep the stock, of course, maybe you roll your call to the next month. Again, I think the key part here is that they want to assume that they for some reason, want to keep the stock and do not want the stock to be called away, so if you have a covered call position on and the stock rallies past your short call strike, at the end of expiration if you don't do anything, basically, what will happen is you'll get assigned on your short call option, but since you have the underlying shares of stock in your account which creates the covered position, basically, it's a loss. You just close out of the position at whatever the net price is for the covered call.

If you don't want to have that happen and if you want to maintain it, then yes, you can close out of and reverse your short call option position and roll it to the next month. Now, just be careful when you roll these positions to the next month, that you don't just roll to another in the money strike in the next month because if you roll it to another in the money strike in the next contract month, you still could be at risk of assignment. Say if there's a dividend coming up or something's happening in the stock or earnings are going to be announced, you still could be at a little bit of a risk of assignment even though you've rolled the contract out to the next expiration period. Now, likewise, you can also close your covered call if the stock moves away from you. If the stock starts to fall away and you want to actually close your short call option and roll down to a closer strike price to take in some more premium, you can do that as well. Remember, all of these option contract unless they're on a European style index like SPX, NDX, RUT, etcetera, you can close out of these positions and move the contracts anytime and you don't ever have to deal with any of the risk of assignment if you remove the option position. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

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