Hi There !

An investor can buy stock and sell a call option on that same stock. 
This is covered call writing.

After a period of time, the investor may elect either do nothing or
one of the following:

1.  Roll up (sell another call at a higher strike price)
2.  Roll down (sell another call at a lower strike price)
3.  Roll in (sell another call in an earlier month)
4.  Roll out (sell another call in a later month)

I am interested in #1 and #2.  I'm not interested in #3 and #4.

What are some common "rules of thumb" for #1 and #2?

I've read two suggestions:

1.  When the stock price rises or falls more than 10%, or
2.  When the option's intrinsic value (as a percentage of total option
value) is below 15% or above 85%


A 5-star answer would be 2-3 paragraphs on rules of thumb for rolling
up or rolling down.  No documentation needed----just your opinion.

All comments greatly appreciated !


Thanks.
ron

It always depends on what the market does, right?  We're in a pretty
sideways environment, so the call writers are doing well.  The covered
call generates income at the expense of limiting your upside
potential.  When opening more positions, the strike price you choose
depends on many variables - your valuation methods, trading skill, and
prognostication ability of both the market and the underlying
security.  When I say "trading skill," I mean getting a good price and
entry point, not paying wide spreads, having reasonable commissions
and executions.

May your future present many options.

Thanks, daytrader76!

I appreciate it.

ron

If it is below my cost basis, I never roll down.   To me that is the
equivalent of catching a falling knife.  I would rather dump the stock
that guess where it will be 2 months from now. Repairing a small loss
is easier than repairing a big one.

If I am above my cost basis, and the stock is running away from me,
depending on the situation, I would rather roll out, than up. It
depends largely on how bad I want to hold onto the stock.  Stupid news
can change the fundamentals over night. If nothing has changed,
usually, I just let the stock get called away and be happy I made a
few bucks.  Move on to the next good pick.

Dr_Bob----terrific diagnosis!  I appreciate your taking the time.

Related to your answer, I had something interesting happen just today.
 I am currently long Genworth (NYSE:  GNW), and short the August 17.5
calls.  Some guy exercised against me today, calling away my GNW
stock---fully 6 weeks before option expiration!  Hence, your notion of
rolling out may be right on the money.

Thanks again!
ron