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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Herm who wrote (11651)	10/14/1999 7:33:00 PM
From: NateC	Read Replies (2) of 14162

LEAP Calendar Spreads (CCing LEAPs)in which you use the LEAP as a surrogate for the stock because it is much cheaper, will love this bit of news. A new change involves allowing investors to borrow up to 25% of the market value of a long-term options (more than nine month out to expiration) So, LEAPs could become even cheaper to purchase and setup as profitable CC workhorses. NOTE - Not all brokerages will buy into that. I ask that all of you keep your eyes open for news at your brokerages about that margin access for LEAPs. Currently, LEAPs are an all cash deal. The new rules would give you more slack and leverage for this powerful combination. Herm.....I've been working a bit with these long LEAPS, with the short CC's.....essentially a spread. Here's one that I've been working on (Charles Schwab) I went long 8 contracts of ZWSAH, the Schwab Jan 2001 call with Strike Price of 40...and initially paid $19 for that call....which at the time was in the money. So initial nut was $19 at that time (May 1999), I sold the Sept 65 (split adjusted) for 6.875 dropping the nut to $12.125 I bought it back for about $2 I then sold the August 47.5 for 7.375 and bought it back 6 weeks later for 25 cents I then sold the September 40 for 3.125......and after this my nut on the LEAPS calls was $3.94 That CC expired, and I sold the October 40 for 1 3/16....and I bought this back for 1/8 (These cheap buybacks....were obviously because SCH was tanking much of this time....53 in June, closed today at 29 and change) Yesterday I sold the November 32.5 for 1 11/16.....making my NET nut now $1.19 SO....the stock has gone WAY down while I've owned these LEAPS calls.....and yet my nut is $1.19 on these long LEAPS calls......which are today worth 5 1/2 (although this so far disregards commissions) Still....the "other dude's money" has knocked the nut down...than I can sit on these LEAPS if I want to until Jan 2001.......and if SCH takes off and recovers...which many think it will eventually do......the LEAPS could be worth a lot.......If it gets to 50, say sometime during calendar 2000.....the leaps could be worth $15 - $18 comments??

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