Jurgen; RE:" covered... "
...So, you bought LEAPS down low and sold CALLS up high - in effect, you have "legged into" something resembling a short strangle calendar spread position; ie., profit is maximized if, at expiration the price(s) for your underlying(s) are below short CALL strike(s) + option receipt(s), and above your long LEAPS.
Also similar to what we used to call "going short against the box" in the old days, before options were so prevalent. If the market rises and you are assigned, you have been paid a premium to sell out.
An interesting strategy that I just came across, used by another clever LEAP portfolio investor on SI named, "Judy" - is to exercise that % profit you have achieved on your LEAPS, converting them to un-leveraged stock holdings.
These shares will decline (ja, also grow) at a lesser-rate; but, they can more easily be "covered" with near-month calendar CALLs, if even further leverage reduction is desired or, if decay accelerates.
-Steve |
