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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!
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To: John Doe who wrote (8181)8/10/1998 5:40:00 PM
From: Herm  Read Replies (1) of 14162
 
That is correct John. The LEAPs back up the CCs you are selling. What you have going is an option spread. The CCs you sell and the LEAPs you buy.

If and when the CCs are exercised (depending on your broker) you use the LEAPs lower strike price to make good on the CC strike price (which of course better be higher than the LEAPs strike price).

If you don't get called out and the stock moves up you get to do it all over again at a higher CC price. Eventually you can dump the LEAPs for more money than you paid for them just like stocks and you should be able to get three rounds of CCs with a year 2000 LEAP.

Note! AVOID HOLDING THE LEAPs beyond the 50% remaining time. Beyond that point in time the LEAPs time value will start to erode much faster and will lower your LEAP's value somewhat. It is just as easy to unload them and buy another LEAP for say the year 2002! You will be around in 2002 right John? :-)
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