<<Why are you going for the 04's as opposed to 03's?>>
The rate of decay for the time premium that you are paying for with the 03's is quite slow compared to near term calls, but the 04's rate is even slower. You could use either and the 03's will cost a little less. But if I am going to hold these for a while and try to write calls against them several times I will go for the longer term LEAPS. I want what I am buying to decay in value as slowly as possible and I want what I am selling to decay as fast as possible. In the case of HAL, if you are buying the LEAPS intending to hold for a recovery, the '04s give you twice the time for that to happen before they expire.
<<Also re: selling cc's on the leaps - when I spoke to my Fidelity rep he said that I could go ahead and write cc's on leaps, but that it was a matter of symantics. That I was simply opening a naked position.>>
Explain to your Fidelity rep that you are creating a calendar spread (actually a debit diagonal calendar spread is, I believe, the correct terminology). If he doesn't know what a calendar spread is then ask to speak to someone who does. You are not writing naked calls because you are protecting yourself with a long call position at a lower strike price. The long calls happen to be called LEAPS but that shouldn't make a difference. The risks and the margin requirements are no where near the same as they for a naked short call position.
I would, under certain circumstances, consider either buying back the short calls or letting them expire, leaving me with the long LEAPS, but I would not sell the LEAPS without also closing the short calls. If I did the latter, then I would really be naked the short calls and that is something I would want to avoid at all cost.
Fidelity just doesn't seem to be attuned to options other than covered calls. I think you can sell puts and calls using their PowerStreet trading software without being long the stock, but that doesn't run on my Mac. Even with PowerStreet you can't, I think, enter an order like we are talking about as a spread (buy ABC LEAPS and sell ABC calls for a net debit of $XXX). You have to enter two separate orders with the long LEAPS order first, wait for a fill, then enter the short calls to be sure you don't find yourself at the end of the day with no fill on the Leaps order and a naked short call position.Their regular web based trading interface limits what you can do with options further. Of course you can call the reps directly. I have taken the step of opening another account at a broker that is set up primarily for options (Mr. Stock).
<<Did you follow through on your plan?>>
Did not get a chance to set up a spread on HAL today. I see it has fallen further, so perhaps it is just as well. |
