The 80% Options Rule

Over the past few months, the volatility in the markets has created an interesting opportunity and I’ve been considering adjusting my ETF Covered Call strategy slightly.   As a general rule, I usually hold the options through options expiry and wait to be assigned or let the options expire worthless but because the market will violently turn up then down or vice versa, it has become prudent to buy back the options when the option profit reaches above 80% and either resell them again when the market shifts or sell next month’s options at the same or better strike price.

I’ll try to follow this rule moving forward with my existing holdings and will continue to sit in cash until this rudderless Titanic steers a new course.

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One Response to The 80% Options Rule

  1. anonymous says:

    That’s been my approach, until this latest round in which I failed to buy back my XHB calls, and then got called.

    I haven’t ever understood why somebody would hold options through expiry if the opportunity exists to buy them back for almost nothing (with a transaction fee, of course).

    But this time, I was out of town for a week with no access to the internet, and my opportunity to buy back my XHB calls came and went, then XHB skyrocketed to $22 or so. If I’d bought back my calls, I would have made a *lot* more money.

    Darn.

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