No. of Recommendations: 1
When you roll your calls up and out, try to pick contracts that meet all of these tests:
(a) you are increasing your breakeven. New strike+premium is higher than old strike+premium.
(b) each roll is for a credit, not a debit. The premium on what you're selling is higher than that on what you're buying. You are gaining cash, not consuming cash.
(c) since you are rolling to a later date, you ideally also want to be increasing your breakeven by an amount which approximates how much fair value is likely to rise in that amount of time. Otherwise your new exit could be at a higher price but not at a richer valuation multiple.
Thanks for succinctly summarizing exactly the factors I've been wrestling with. Strikes and expirations have to be chosen carefully to avoid the stock running away from you.
Inflation is the wild card that is hard to predict and overcome.
