Herm, let's talk briefly about the leap.
1. Do I gather that your recommendation is to buy as long term as possible ATM, write against if for a few months, then sell before time decay works against you?
2. If you buy ATM, then can I assume that if the underlying stock price rises, there should be a decent rise in the leap option, provided the time decay is not too great to offset the gain?
3. Although buying an OTM leap may be cheaper, the price will not rise as much as the ATM, because the delta is less. Correct?
4. If one was fortunate enough to have a leap which has been steadily rising, and is strongly OTM as it approaches a year out, why not keep the leap until expiration, and continue to write against it? Is it due to the basic concept of taking your profits while you can? I am torn on this concept. Because the idea of continuing to safely write against a leap that is strongly OTM, and which you have closely followed, is attractive.
Can you share your experience on this with me and the thread?
Bye the way, I have joined you in CCing a DIS leap. I agree that it is an excellent example of a long term buy that has seen temporary difficulties. It also has a nice ROI. Now, if only I could find five more like it. We will need to wait for a correction in the market, I feel.
Thanks!
-David |
