In this brief discussion I will point out some of the positives and how to deal with the negatives. Covered Calls Mostly everyone is familiar with this idea where one sells a call against a long stock position. Covered calls can limit potential upside gains from the underlying stock as the upside is capped at the strike price plus premium received. When the stock moves up to the strike price, if you have turned more bullish on the underlying stock, you should be rolling the position up and out. That is to say, up to a higher strike and further out in time.
Most investors wait until the option is too deep in the money to roll.
If you roll when the stock reaches the strike, you may be able to adjust the position for a credit. On the downside, most investors will not stop themselves out of the stock, because they have the covered call in place. If the stock goes down for a fundamental reason, one should consider selling stock and buying back the call option. The put option gives you the right to sell the stock at the strike price through the expiration date of the contract. The breakeven on the stock is increased by the amount paid for the put.