Jill:
Selling puts to finance leaps call has an additional tax advantage. looking at my record: i sold ocli (optical coating labs) feb240 puts and use the fund to buy csco jan01/100 calls with some left over. just an exposure of 2 1/2 months on the puts which i expected will expire worthless, then the leaps of csco is paid off. the profit from ocli puts is ordinary income, however, come jan01, csco calls (leaps) can be sold and generate l/t cap gain at max 20% tax rate, or exercise the option, get csco at 100. in the exercise case, the call reduces the cost basis for csco and the holding period for the stock starts the time you exercise the call.
the bottom line: to finance leaps call purchase you do not have to sell leaps puts (tying your margin for a long period), nor do you need to sell puts of the same security.
as i posted yesterday, i bought lu jan2002/45 calls to which i have not sold corresponding puts to finance. will do it on monday. when one uses opm, one has to be ready to get an assignment. one way to limit the risk is to sell way otm puts, and have the capacity and willingness to own the stock. a put seller should always be willing to close the position with a limited loss should the market goes against him/her.
good luck trading
paul |
