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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: kc_hall who wrote (12281)1/29/2000 2:31:00 AM
From: Greg Higgins   of 14162
 
kc_hall writes: I started trading cc's against LEAPS this week. I bought the MCD Jan02 50's @4 1/2. Sold Feb 37.5 @1 1/4.

This seems incredible to me. My question is do you think the price spread is to great? If not is there any reason not to buy the cheapest LEAP possible to write cc's against?


I had intended to put a discussion on this topic on my Advanced Options Strategies thread; while I don't have time to go into it in detail now, you'll find the majority opinion on this thread leans toward buying in the money calls for the long side.

I've been doing this for a bit, and I don't see anything inherently wrong with the selling short calls against long OTM LEAPS. You will need to keep the difference in strikes in your margin account, and I would suggest choosing OTM calls several months out. This is because it will cost you dearly to buy back your short position should the stock rise a mere $5. Your OTM LEAP will gain nothing near that amount so without the advantage of starting with the ability to have the price move in your favor, you're left hoping for stability in the stock. While MCD isn't a high flier, it frequently has it's moments when it jumps a few bucks every time they announce a new beanie baby Happy Meal deal.
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