One of the most challenging scenarios for covered call traders is when your stock position sits underwater—trading below your cost basis. Traditional covered call wisdom says to only sell calls at or above your cost basis to avoid locking in a loss. But this conservative approach severely limits your premium collection opportunities when your position moves against you.
What if there was a systematic way to sell covered calls below your cost basis while maintaining protection against losses? The weekly average trading range (ATR) strategy provides exactly that framework. By understanding how much a stock typically moves in a week, you can sell calls at strikes that offer meaningful premium while staying within safe boundaries.
This strategy works particularly well when combined with the ability to roll positions. If the underlying moves more than expected, you simply roll the call forward in time and potentially up in strike price, protecting your downside while continuing to collect premium. The key insight is that you never have to accept assignment below your cost basis if you monitor your positions and act strategically.
The average trading range tells you how much a stock or ETF typically moves over a specific timeframe. For weekly covered call strategies, the weekly ATR becomes your most important metric for strike selection. It represents the average price movement you can expect during a typical trading week.
Weekly ATR measures the average difference between the weekly high and weekly low prices over a rolling period. For example, if BITO typically moves $1.20 per week on average, that $1.20 is your weekly ATR. This metric provides a statistical baseline for expected movement.
The power of this metric lies in its predictability. While any individual week can see extraordinary movement, the average smooths out volatility and gives you a reliable planning tool. Stocks tend to move within their historical ranges most of the time, with outlier weeks being relatively rare.
Many trading platforms provide ATR calculations, but you can also calculate it manually by tracking weekly high-low differences over 12-20 weeks and computing the average. Once you have your weekly ATR number, you apply it as a buffer above the current stock price when selecting covered call strike prices.
Current BITO Price: $18.12
Weekly ATR: $1.20 (rounded to $1.50 for safety margin)
Safe Strike Selection: $18.50 + $1.50 = $20.00
Logic: If BITO trades at $18.12 and typically moves $1.20 per week, selling the $20 strike covered call gives you a $1.88 buffer above current price, well within normal movement patterns for a 5-day expiration.
Conservative traders often round their ATR calculations up to provide additional cushion. In the BITO example, the actual weekly ATR was $1.24, but rounding to $1.50 creates a 20% safety margin. This extra buffer reduces the likelihood that normal volatility will push the stock through your strike price unexpectedly.
The safety margin becomes particularly important when selling calls below cost basis, because you want maximum statistical confidence that the strike will remain out of the money through expiration. The extra protection costs you nothing but potentially saves you from needing to roll positions as frequently.
The weekly ATR strategy specifically applies to the upcoming week only. If you sell calls two or three weeks out, you need to multiply the weekly ATR by the number of weeks until expiration. A stock with $1.20 weekly ATR could move $2.40 in two weeks or $3.60 in three weeks on average.
This is why the strategy works best with weekly expirations. The shorter the timeframe, the more predictable the movement, and the tighter you can keep your strike selection. Extending to multiple weeks increases uncertainty and requires wider strike buffers, reducing premium potential.
Now that you understand weekly ATR as a concept, let's build the complete strategy framework that allows you to safely sell covered calls below your cost basis while protecting against losses.
Before selling any covered call, you must know your true cost basis. This includes your purchase price minus any premium you've collected from previous covered calls or cash-secured puts on the same position. Your adjusted cost basis is your real breakeven point.
In the BITO example from the video, the position had accumulated 1,200 shares at various prices. The straight dollar cost average was $25.83 per share, but after collecting $3,200 in total premiums, the adjusted cost basis dropped to $23.20 per share. This $2.63 difference is significant when making trading decisions.
Check your trading platform or MyATMM for the weekly ATR calculation on your underlying. This number should be updated regularly as market conditions change. A stock that typically moves $1.20 per week during calm markets might expand to $2.00 during volatile periods.
Monitor whether the stock's volatility is currently higher or lower than average. If implied volatility is elevated, consider using a larger safety buffer. If the stock has been range-bound and calm, the standard ATR calculation may be sufficient.
Take the current stock price, add your rounded-up weekly ATR, and that gives you your maximum safe strike for the upcoming weekly expiration. This strike price should be significantly below your cost basis if you're underwater, but far enough above current price to avoid early assignment risk.
Stock Position: 1,200 shares BITO
True Cost Basis: $23.20 (after premiums)
Current Price: $18.12
Weekly ATR: $1.24 (rounded to $1.50)
Safe Strike Calculation:
Analysis: The $20 strike is $5.20 below cost basis but $1.88 above current price, within safe statistical boundaries for a 5-day period.
Once you've identified your safe strike, check the bid-ask spread and mark price for that option. For weekly options, you're typically looking at premiums between $0.05 and $0.25 per share, depending on how far out of the money the strike is.
In the BITO example, the $20 strike with 5 days to expiration offered $0.07 per share ($7 per contract). While this seems small, across 12 contracts (1,200 shares) it generates $84 in premium for a week. Annualized, that's over 23% return on the current stock value.
Place your covered call order at the mark price or slightly higher if you're patient. Once filled, monitor the position daily. If the stock moves significantly higher and approaches your strike price before expiration, you have three options:
The critical insight is that you never have to accept assignment at a strike below your cost basis. As long as you monitor positions and roll when necessary, you maintain control and continue generating income.
Let's walk through the actual BITO position from the video to see how the weekly ATR strategy works in practice. This real-world example demonstrates both the calculations and the practical considerations when selling covered calls below cost basis.
The trader held 1,200 shares of BITO (ProShares Bitcoin Strategy ETF) accumulated over multiple transactions. Here's the position breakdown:
| Metric | Value |
|---|---|
| Shares Owned | 1,200 |
| Total Capital Invested | $31,000 |
| Current Stock Price | $18.12 |
| Current Position Value | $21,744 |
| Unrealized Loss | -$9,256 |
| Total Premium Collected | $3,200 |
| Dollar Cost Average (DCA) | $25.83 |
| Adjusted Cost Basis (with premiums) | $23.20 |
With BITO trading at $18.12, the position was $5.08 per share underwater on a premium-adjusted basis. Traditional covered call wisdom would say to only sell calls at $23.20 or higher (the adjusted cost basis). But with the stock trading at $18.12, there is zero premium available in $23 strikes for weekly expirations.
This is where the weekly ATR strategy provides a solution. The key is finding a strike that:
BITO's weekly ATR showed an average movement of approximately $1.24 per week. Rounding up to $1.50 for safety, the calculation proceeded as follows:
Current Price: $18.12 (rounded to $18.50)
Weekly ATR Buffer: $1.50
Target Strike: $18.50 + $1.50 = $20.00
Days to Expiration: 5 days (Friday weekly option)
Available Premium: $0.07 per share (mark price)
Total Premium Potential: 12 contracts × $7 = $84
The $20 strike provides multiple layers of protection:
What happens if BITO surges and reaches $19.80 by Thursday, threatening assignment at $20? The trader has clear options:
The key principle is that rolling prevents assignment at undesirable prices. As long as you're willing to manage the position, you never have to accept a loss. You simply continue rolling and collecting premium until the stock recovers or you've collected enough premium to offset the initial loss.
The video demonstrates how all of these transactions track in the MyATMM platform. Each premium collection, each roll, each assignment gets logged into the permanent transaction history. The platform automatically calculates:
This comprehensive tracking ensures you always know your true breakeven point and can make informed decisions about strike selection and rolling strategies.
Rolling is what transforms the weekly ATR strategy from risky to conservative. Without the ability to roll, selling covered calls below cost basis would be gambling. With rolling, you gain a mechanical safety mechanism that prevents locked-in losses while continuing to generate income.
Rolling an option position means simultaneously closing your current short option and opening a new short option with a different expiration date and potentially different strike price. For covered calls, rolling typically involves:
Successful rolls generate net credit, meaning you receive more from selling the new call than you pay to close the existing one. This credit represents additional premium in your pocket while extending the position into the future.
You should consider rolling your covered call position when:
You do not need to roll when the stock sits comfortably below your strike with only a day or two until expiration. Let those options expire worthless and keep 100% of the premium.
The simplest roll is rolling forward to the same strike in the next weekly expiration. This works when you still believe the strike is safe but need more time for the option to decay.
Current Position: Short 12 BITO $20 calls expiring Friday (2 days away)
Stock Price: $19.75 (approaching strike)
Current Calls Bid Price: $0.15 per share
Next Week $20 Calls Ask Price: $0.22 per share
Rolling Action:
Result: You collected an additional $84 in premium while giving yourself another full week for the stock to settle back below $20.
Rolling up and out means going to both a higher strike price and a later expiration. This is more aggressive and moves you closer to your cost basis while collecting larger premium.
Current Position: Short 12 BITO $20 calls expiring Friday
Stock Price: $20.10 (in the money)
Rolling Action:
Advantages:
Sometimes you need more time and more distance. Rolling out two or three weeks can generate significant credit while giving your position breathing room.
The downside is that longer expirations tie up your shares for extended periods, potentially missing better premium opportunities if the stock pulls back. Balance the desire for immediate credit against the flexibility of shorter expirations.
Every successful roll that generates credit accomplishes two things simultaneously:
If you roll a position three or four times, each generating $80-$120 in credit, you might collect $400 in premium from repeated rolls. That $400 reduction in cost basis (on 1,200 shares = $0.33 per share) brings you closer to breakeven even if the stock price doesn't change.
Rolling has limitations. If the stock gaps dramatically higher overnight due to unexpected news, you might not be able to roll for a credit. In extreme cases, you might need to accept assignment or roll for a small debit.
Additionally, endless rolling on a continually rising stock eventually becomes counterproductive. If the stock has genuinely broken out and is likely heading back toward your cost basis, it may be better to close the calls at a loss and let the stock appreciation offset that loss.
The weekly ATR strategy requires active monitoring, especially when positions move against you. Proper risk management ensures you maintain control and avoid unwanted assignment or losses.
When selling covered calls below cost basis using the weekly ATR method, check your positions daily. This doesn't mean obsessive minute-by-minute watching, but rather a systematic review each morning or afternoon to verify:
This daily review takes 2-3 minutes per position but provides critical information for making timely rolling decisions if needed.
Most trading platforms allow price alerts. Set alerts at strategic levels:
These alerts notify you when action may be needed, even if you're not actively monitoring throughout the trading day.
As a general guideline, if your strike is threatened with three or more days to expiration, consider rolling immediately. The longer you wait, the more expensive the roll becomes as the stock continues moving higher. Early rolls typically generate better credits than last-minute panic rolls.
Conversely, if your strike is threatened with only one day to expiration, you might choose to wait. The stock could easily pull back overnight, and rolling at that point costs more in commissions and bid-ask spreads than the potential benefit.
The weekly ATR strategy works best when you're selling calls on your entire position. This maximizes premium collection. However, some traders prefer to sell calls on only 50-75% of shares, leaving room to sell additional calls at higher strikes if the stock rises.
This partial coverage approach reduces income but provides flexibility. You can layer in additional calls at higher strikes, creating multiple opportunities to adjust without needing to roll existing positions.
Every roll costs two commissions—one to buy back the existing call and one to sell the new call. If you're using a broker that charges $0.50-$0.65 per contract, rolling 12 contracts costs $12-$15.60 in commissions. Factor this into your rolling decisions.
On small positions or low premium rolls, commissions can eat significant portions of your credit. Make sure the net credit after commissions justifies the roll. Sometimes accepting assignment or closing the position makes more financial sense than repeated low-credit rolls.
Every transaction related to this strategy—initial calls sold, rolls executed, assignments received—should be logged in MyATMM. The platform's transaction tracking ensures you always know:
This detailed tracking prevents confusion when managing multiple positions across multiple underlyings, each with different cost bases and premium histories.
Not every underlying or market condition suits the weekly ATR covered call strategy. Understanding optimal conditions helps you apply this approach where it delivers the best results.
The weekly ATR strategy performs best on underlyings with these traits:
ETFs like BITO, SPY, QQQ, and IWM often work well because they have active weekly option markets and relatively consistent movement patterns. Large-cap stocks with strong option liquidity also qualify.
Certain market environments amplify the effectiveness of weekly ATR covered calls below cost basis:
Conversely, some situations make weekly ATR covered calls problematic:
This strategy works best on positions representing 3-8% of your portfolio value. Larger concentrations increase risk if you need to accept assignment or if the stock continues declining. Smaller positions generate insufficient premium to justify the management effort.
The BITO example with 1,200 shares at $18.12 (approximately $21,744) would fit well in a $300,000-$500,000 portfolio. The position is significant enough to generate meaningful income but not so large that a worst-case scenario creates portfolio-level problems.
This is not a quick-fix strategy for immediate losses. If you're $5 per share underwater and collecting $0.07 per week in premium, recovery takes significant time. At that rate, collecting $5 per share requires approximately 71 weeks of successful premium collection.
The strategy works best when combined with the hope of eventual stock price recovery. The premium collection reduces your breakeven point while you wait for the stock to appreciate back toward your original cost basis. View it as a two-pronged approach: income generation plus capital appreciation.
Like all trading strategies, the weekly ATR approach to selling covered calls below cost basis comes with both significant advantages and important limitations. Understanding both helps you apply the strategy appropriately and set realistic expectations.
1. Generates Income on Underwater Positions
The primary benefit is turning losing positions into income generators. Instead of simply holding and hoping for recovery, you actively collect premium that reduces your effective cost basis. This transforms a passive loss into an active income strategy.
2. Statistical Foundation Reduces Guesswork
Using weekly ATR provides a mathematical, data-driven approach to strike selection rather than random guessing. You're not hoping a strike is safe—you're calculating statistical probability based on historical movement patterns.
3. Rolling Provides Downside Protection
The ability to roll positions prevents forced assignment at unfavorable prices. As long as you monitor positions and act when needed, you maintain control and can avoid locking in losses.
4. Works With Your Existing Holdings
You don't need to buy new positions or risk additional capital. This strategy monetizes shares you already own, converting a static holding into an active income stream.
5. Accelerates Recovery Time
By collecting premium while waiting for price recovery, you reduce the stock price movement needed to reach breakeven. If you collect $2 per share in premium, the stock only needs to recover to $3 below your original cost basis rather than fully recovering.
1. Requires Active Management
This is not a set-and-forget strategy. You must monitor positions daily and be prepared to roll when the stock threatens your strike. Traders who prefer completely passive approaches will find the monitoring requirement burdensome.
2. Caps Upside Participation
If your stock suddenly surges back toward your cost basis, your short calls limit your profit potential. You'll need to either accept assignment at the strike price or roll repeatedly, which can be expensive if the stock is moving aggressively higher.
3. Doesn't Protect Against Continued Decline
Covered calls provide minimal downside protection. If your stock continues falling, the small weekly premium you collect won't offset the ongoing capital losses. The strategy works for recovery and consolidation, not for catching falling knives.
4. Commission Costs Add Up
Frequent rolling generates commission expenses. If you're rolling positions every two weeks, you're paying 2-4 commissions per month per position. These costs reduce net premium collected and should be factored into profitability calculations.
5. ATR Can Change Suddenly
Historical average trading range doesn't guarantee future movement patterns. Market conditions change, volatility spikes occur, and unexpected news can cause movement far beyond typical ATR calculations. The strategy provides statistical advantage but not certainty.
6. Small Weekly Premium Can Feel Frustrating
Collecting $0.07 per share per week feels modest compared to the size of your unrealized loss. It requires patience and long-term perspective to appreciate the cumulative effect of consistent small premium collection.
Set appropriate expectations for what this strategy can and cannot accomplish:
MyATMM provides the complete infrastructure needed to execute and track the weekly ATR covered call strategy effectively. The platform handles all the complex calculations and transaction tracking so you can focus on strategy execution.
MyATMM automatically calculates and displays the weekly average trading range for each ticker in your portfolio. This metric appears on the cost basis screen, giving you immediate access to the critical number you need for strike selection.
The platform updates ATR calculations regularly based on recent price action, ensuring you're always working with current data rather than outdated historical averages. This dynamic updating helps you adjust to changing volatility environments.
The platform's core strength is accurate cost basis calculation. As you sell covered calls and collect premium, MyATMM automatically adjusts your cost basis downward. This gives you an accurate picture of your true breakeven point after all premium collections.
When you log each covered call sale, the premium received (minus commissions and fees) immediately updates your adjusted cost basis. You can see both your dollar cost average and your premium-adjusted cost basis side by side, providing clarity on your real position status.
Every covered call sale, every roll, and every expiration gets logged in your permanent transaction history. This comprehensive record provides:
This detailed history becomes invaluable at tax time and for analyzing strategy performance over extended periods.
MyATMM includes a premium tracking dashboard that shows monthly and annual premium collection across all your positions. You can see exactly how much income you've generated from option selling, broken down by month and by ticker.
This visualization helps you understand strategy effectiveness and set realistic expectations for future income. If you've collected $3,200 in premium over 8 months on BITO, you can project forward and estimate how much additional premium you'll need to collect to reach your recovery goals.
The platform displays all your current open positions (both puts and calls) with key details:
This at-a-glance view makes it easy to see which positions are approaching expiration and may need attention or rolling decisions.
When you have active cash-secured puts, MyATMM shows proposed cost basis—what your cost basis would be if those puts are assigned. This forward-looking calculation helps you make informed decisions about accepting assignment or rolling puts.
The proposed records feature bridges the gap between current positions and potential future positions, giving you complete visibility into your portfolio trajectory.
The platform includes brokerage account reconciliation features, helping you verify that MyATMM's calculated balances match your actual brokerage statements. This ensures all transactions are properly logged and no premium collections or assignments are missed.
For ThinkorSwim users, the cash sweep vehicle balance provides the most accurate comparison point. MyATMM's brokerage balance field should match your cash sweep total exactly if all transactions are properly tracked.
Holding underwater stock positions doesn't mean you're out of options. The weekly ATR strategy for selling covered calls below cost basis transforms passive losses into active income generation. By using statistical movement patterns to select safe strikes and combining that with rolling capabilities, you gain a mechanical framework for collecting consistent premium while protecting against additional losses.
The BITO example demonstrates the strategy in practice: 1,200 shares sitting $5 underwater became an income-generating position through systematic weekly covered call sales. Each $84 or $120 premium collection incrementally reduced cost basis, bringing breakeven closer without requiring stock price recovery.
This approach requires patience, diligent monitoring, and willingness to roll when positions are threatened. It's not passive income—it's active management with statistical backing. But for traders comfortable with this level of engagement, the strategy offers a path to recovery that beats simply holding and hoping.
The key principles to remember:
By combining sound statistical analysis with active position management and comprehensive tracking, you turn what could be a frustrating losing position into a disciplined income strategy. The premium you collect today reduces the recovery distance needed tomorrow, accelerating your path back to profitability.
Whether you're working with BITO, dividend aristocrats, or other high-quality underlyings, the weekly ATR framework gives you a proven methodology for safely selling covered calls below cost basis while maintaining control over your risk and maximizing your income potential.
Options trading involves significant risk and is not suitable for all investors. Selling covered calls below your cost basis can result in selling shares at a loss if assigned. While rolling strategies can help avoid assignment, they are not guaranteed to prevent losses in all market conditions. Past performance does not guarantee future results.
The weekly ATR strategy described here is educational in nature and does not constitute financial advice. Stock prices can move beyond historical average ranges, especially during volatile market conditions or in response to unexpected news. Always understand the risks involved and consider consulting with a qualified financial advisor before implementing options strategies.
This content is for educational purposes only and should not be considered a recommendation to buy or sell any specific security or to implement any particular trading strategy.
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