Hi John,
Another calendar spread idea you might want to consider is buying LEAPS on a big liquid, well-positioned company like Intel, and instead of buying the stock for 97 dollars/share, buy the cheapest 2000 LEAP calls, and the cheapest 2000 LEAP puts (a long term straddle) which will cost you a FRACTION of what the stock does, but will allow you to be covered in case of a major market downturn (Intel is a monopoly with excellent fundamentals and management besides).
Once you have the long term postion established, sell Covered Calls (spread the long calls) with close expiration, short calls and reap the Covered Call benefit, all the time Intel continues to move up.
Incidentally, McMillan stresses that one of biggest mistakes investors make with options, is not checking the implied volatility before buying them, and Intel (because of liquidity and trading interest) has one of lowest implied volatilities day-to-day of any of the big techs. (the small techs are astromically high, right now!)
This is important, because any option you buy right now is probably at a 7 year high (like the $VIX)
Remember, if you sell the deeper in the money calls, you technically have a "credit spread" whether or not you take a credit......This requires the use of margin. If you sell the higher strike call (than your long call), then you don't have the margin requirement, because it's covered by the deep-in-the-money stock surrogate.
AND, if you sell the near-month call, you have the one-two punch of high delta and time decay working in your favor.
Dick |
