What do you do when you have written calls on one of your holds, but it then does something unexpected and rises (e.g., a stock split announcement)? Is there an escape hatch?

  There are three things you can do (there may be more that we just have not figured out yet): 1) buy them back if you have no time and want to keep the stock; 2) roll out to the next month and hope the stock drops; 3) a hybrid.

One thing we always do is keep enough extra cash in our IRA accounts in the event we have to buy some calls back at a higher price. The fact of trading these is that you will have the unexpected happen, and you may not have time to be creative and just need to buy them back. Or, you could be creative and still have to buy them back, but have been able to work your cost basis lower and put some more cash in the account at the same time. In any event, you need cash to buy them back if you want to close the position and keep your stock. The key is not to let the stock get too far away from you so you have to spend a lot of money. The point of this is to generate extra cash, and you don't want to let a position get away from you and use up all that cash you have built up. You want to use that to buy more stock.


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