When LVS went down Pass $15 last trading day of 2009, i did a rolldown of $16 covered call to $15 covered call to gain more premium income to reduce my Capital Risk.
This move got me 'locked' at a obligation to sell the stock at $15 during the time to expiry on Jan 15 2010. The next trading on New Year Monday, Jan 4 & 5, market wentup. LVS moved up a total of $3.35 . My position being 'locked' at $15 dosent allow me to take advantage of the Capital Gain in the price.
i reviewed my current situation & choices available also the consequences of the choices before deciding on my next step.
1) Buy back the Call at a high price (Requires a lot of Cash, which unavailable)
2) Allow the Call to be exercised by expiry (End amt can be calculated after expiry)
3) Close the entire Covered Call position (To Release the Capital/Cash)
All the above 3 choices based on current prices still maintains a positive acct value, Choice 1 isnt executable, Choice 2 till expiry nothing will happen & you know how much you'll eventually get after being exercised, Choice 3 after releasing the capital, i can still do a SELL PUT to make Premium Income for the 'opportunity loss' during stock capital gain.
I decided to go for Choice 3 as it has more benefits to my current situation, also after which i can be back ontrack on my system after expiry(if its expired) to continue making Premium Income for the next round to fulfill my Funding Obligations. Lesson learnt, to wait for confirmation signal when support/resistance line is tested before taking on the assumption of a downtrend breakout.
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