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The question I have is what do you do when the underlying dropped a lot. For example, I sold a covered call when MDB was $168 and it dropped to $149 at expiration. Of course, I lost $ for that trade.

I don't see how you lost money, you earned the premium and still have the stock. BTW, the only day after hitting 168 that MDB closed at 149 (actually at 147.67) was July 1 which was a Monday. After that MDB closed at 164 on July 19.

But to answer the question, and it's a tough one, the biggest danger is anchoring. So far I have dealt with it on a case by case basis but the logical me is telling me to take the loss if there are better stocks to sell calls on. By protecting one position you are hurting yourself on another.

1. Write a new "best" call for MDB even if it may be below your basis?
2. Use a strike at or above your basis?
3. Sell the stock and move on to the next opportunity?


By the above logic, option 1 would be best if it's a trade worth making, if there is no better trade available, otherwise 3. 2 is anchoring!

Denny Schlesinger
 

BTW, it's Denny with an 'e' ;)
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